Market Data 
- EUR/USD trades back and forth around 1.1350 as investors gauge clarity on Trump’s tariff policy.
- Fed Waller backs interest rate cuts due to escalating US recession risks.
- The ECB is widely anticipated to cut interest rates by 25 bps on Thursday.
EUR/USD demonstrates a sideways trend near 1.1350 during late European trading hours on Tuesday after a sharp run-up in the last few trading days. The major currency pair consolidates as the Euro (EUR) trades cautiously ahead of the European Central Bank’s (ECB) monetary policy decision, which will be announced on Thursday. The ECB is almost certain to cut its Deposit Facility Rate by 25 basis points (bps) to 2.25%. This would be the sixth straight interest rate cut by the ECB in a row.
Investors will pay close attention to ECB President Christine Lagarde’s press conference to get cues about the likely monetary policy outlook for the remaining year and how new trade policies by US President Trump will shape the Eurozone economy.
A slew of ECB officials has commented that Trump’s tariffs-led-inflation won’t be persistent and will lead to significant economic risks. An increase in Trump-driven inflation would be offset by China dumping their products into the Euro area. The escalating trade war between the US and China would force the latter to look for other economies to sell their goods. The tariff war between the US and China escalated after the Asian giant retaliated against Trump’s reciprocal tariffs by increasing duties on imports from America.
On the global front, trade relations between the US and the Eurozone are expected to become healthy. US National Economic Council (NEC) Kevin Hassett said in an interview with Fox Business Network on Monday that they are making “enormous progress” on tariff talks with the European Union (EU).
Meanwhile, the Eurozone and German ZEW Survey – Economic Sentiment for April has come in significantly weak. The Eurozone sentiment data slides to -18.5 from estimates of +14.2 and the prior release of 39.8. German ZEW Survey – Economic Sentiment has come in at -14 in April from 51.6 in March, missing the market estimate of 9.3 by a wide margin. The sentiment of institutional investors has been dented significantly by heightening global trade tensions. Analysts at Barclay are anticipating an economic recession in the Euro area in the second half of 2025 despite a partial 90-day pause on reciprocal tariffs by US President Trump. The Washington announced 20% reciprocal levies on imports from the EU.
Daily digest market movers: EUR/USD turns sideways ahead of ECB monetary policy
- EUR/USD consolidates as the US Dollar (USD) gains a temporary cushion after remaining under pressure for over a week. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, finds ground near a fresh three-year low near 99.00, posted on Friday.
- However, investors brace for more weakness in the US Dollar as the currency is losing its safe-haven status due to ever-shifting tariff headlines by United States (US) President Donald Trump since last week.
- After declaring a 90-day pause in the execution of reciprocal tariffs on all of its trading partners, except China, US President Trump is planning to announce a temporary suspension of automobile levies. This would buy time for domestic automakers to set up manufacturing facilities at home.
- Additionally, heightened fears of an economic slowdown due to Trump’s economic policies have also weighed on the US Dollar and have strengthened US Treasury yields. Historically, yields on interest-bearing assets increase sharply as financial market participants add the risk premium in times of economic uncertainty. 10-year US Treasury yields have increased over 13% in the last six trading sessions.
- Rising bond yields and escalated fears of an economic slowdown are expected to jeopardize the Federal Reserve’s (Fed) monetary policy outlook. On Monday, Fed Governor Christopher Waller warned that the “new tariff policy” is one of the “biggest shocks” to affect the US economy in decades. Waller gave more weightage to brewing fears of an economic recession over accelerating inflation expectations and backed monetary policy easing. He anticipated that the “effects of tariffs in raising inflation” will be “short-lived”.
Technical Analysis: EUR/USD wobbles around 1.1350
EUR/USD wobbles around 1.1350 in Tuesday’s late European session. The overall outlook of the major currency pair is strongly bullish as all short-to-long Exponential Moving Averages (EMAs) slope higher.
The 14-day Relative Strength Index (RSI) jumps above 70.00, indicating a strong bullish momentum.
Looking up, the psychological resistance of 1.1500 will be a major resistance for the pair. Conversely, the April 11 low of 1.1192 will be the key support for the Euro bulls.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region.
The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger 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.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro.
QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
