- EUR/USD gains momentum after the European Union (EU) announced a 90-day suspension of new 25% tariffs on US imports.
- Traders are now pricing in a deposit facility rate of 1.8% by December, up from 1.9% the previous week.
- The US Consumer Price Index rose by 2.4% YoY in March, down from 2.8% in February.
EUR/USD extends its gains for the second successive day, trading near 1.1350 during Friday’s Asian session. The Euro (EUR) strengthened after the European Union (EU) announced a 90-day pause on new 25% tariffs on the United States (US), aiming to create space for trade negotiations.
A sudden policy reversal by the White House on Wednesday now means the EU will face a 10% duty on exports to the US until July—rather than the 20% “reciprocal tariff” that was briefly implemented. However, Trump’s 25% tariffs on steel, aluminum, and cars remain in effect.
Traders adjusted their expectations for European Central Bank (ECB) rate cuts. Investors are now pricing in a deposit facility rate of 1.8% by December, up from 1.65% on Wednesday and 1.9% the week prior. The likelihood of an April rate cut also declined to 90%, down from a full probability just a day earlier.
The EUR/USD pair continues to strengthen as the US Dollar loses ground amid lingering concerns over both the global and US economies. The US Dollar Index (DXY), which tracks the USD against a basket of six major currencies, has slipped to around 100.20 at the time of writing.
Additionally, the US Dollar faces headwinds due to a surprise drop in US consumer prices for March, shifting investor focus to upcoming key data releases — the March Producer Price Index (PPI) and preliminary Michigan Consumer Sentiment, both due later today.
March’s US Consumer Price Index (CPI) showed headline inflation easing to 2.4% year-over-year, down from 2.8% in February and below expectations of 2.6%. Core CPI, which excludes volatile food and energy prices, rose 2.8%, down from 3.1% and missing the 3.0% forecast. Monthly, headline CPI fell 0.1%, while core CPI edged up 0.1%.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day.
EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy.
The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control.
Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency.
A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall.
Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
