Market Data 
- EUR/USD faces challenges as the US Dollar gains strength, supported by signs of easing tensions between the US and China.
- China announced exemptions for certain US imports from its 125% tariffs, offering a glimmer of hope for improved trade relations.
- ECB’s dovish expectations are building amid rising concerns that Eurozone inflation could fall short of the central bank’s 2% target.
EUR/USD continues to weaken for a second consecutive session, trading around 1.1360 during Asian hours on Monday. The pair is under pressure as the US Dollar (USD) strengthens amid signs of easing tensions between the US and China.
On Friday, China exempted certain US imports from its 125% tariffs, according to business sources. The move has fueled hopes that the prolonged trade war between the world’s two largest economies might be drawing to a close.
Adding to the sentiment, US Agriculture Secretary Brooke Rollins said on Sunday, as reported by Reuters, that the Trump administration is holding daily discussions with China regarding tariffs. Rollins emphasized that talks were ongoing and that trade agreements with other countries were also “very close.”
Despite these comments, Reuters cited a Chinese embassy spokesperson on Friday, who firmly denied any current negotiations with the US, stating, “China and the US are not having any consultation or negotiation on tariffs.” The spokesperson urged Washington to “stop creating confusion.” Additionally, a Beijing official reiterated on Thursday that no “economic and trade negotiations” were underway and stressed that the US must “completely cancel all unilateral tariff measures” to pave the way for talks.
Meanwhile, dovish expectations surrounding the European Central Bank (ECB) are mounting, fueled by growing concerns that Eurozone inflation may fall short of the ECB’s 2% target. Last Thursday, ECB policymaker and Finnish central bank governor Olli Rehn warned of downside risks to inflation, noting, “It is quite possible that the projections for medium-term inflation under the current circumstances may well be below the 2% target.”
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.
