- EUR/USD fell 0.85% on Thursday after Trump reiterated tariff threats.
- Risk sentiment got knocked lower after Trump pivoted on his own tariff timeline.
- US data also soured, pointing toward a general slowdown and rising inflation pressures.
EUR/USD took a leg lower on Thursday, falling nearly nine-tenths of one percent and slipping back below 1.0400 for the first time in almost two weeks. A weak technical stance has been developing in the Fiber pair, and a fresh threat of US tariffs on European goods is weighing further on bids.
European tariff threats back on the forefront
Mere hours after affirming that threatened tariffs would begin in April, US President Donald Trump surprised markets by pivoting once again on when he thinks he’ll be imposing import taxes on a wide swath of the US’ closest trade partners. According to President Trump, tariffs aimed squarely at Canada and Mexico are still set to proceed next week, beginning on March 4.
On top of steep tariffs aimed at close US allies, President Trump took the opportunity to inform his social media followers that Europe has treated the US “very badly” on trade, possibly alluding to his administration’s insistence that European VAT taxes are a sort of tariff on US goods. Further “reciprocal” tariffs are still planned to take effect in early April, with a batch of tariffs aimed specifically at the EU.
US data hints at more inflation on the cards
US GDP growth for Q4 surpassed forecasts, and Durable Goods spending increased faster than expected in January. GDP rose to 2.4% QoQ, above the 2.2% expectation, while the annualized figure remained stable at 2.3%.
Durable Goods Orders surged to 3.1% MoM in January, exceeding expectations of 2.0% and recovering from a revised -1.8%. However, much of this increase results from businesses stocking up ahead of possible tariffs, and rising inflation may be artificially inflating the figures, posing future challenges. The increase in Durable Goods Orders primarily came from the transportation sector due to a surge in Boeing bookings and automotive vehicles. Excluding these factors, orders were flat at 0.0% in January, missing the 0.3% forecast and falling short of the revised 0.1%.
US PCEPI inflation data is expected Friday. Thursday’s preview suggests an unfavorable outlook for investors hoping the recent rise in headline inflation is temporary. QoQ Core PCE rose to 2.7%, up from the expected 2.5%.
EUR/USD price forecast
EUR/USD's Thursday downturn puts Fiber back on the bearish side of the 50-day Exponential Moving Average (EMA) at 1.0444, pushing intraday bids back below 1.0400. Momentum has pivoted sharply bearish, and price action is poised for an extended backslide to the last swing low near the 1.0300 handle.
EUR/USD daily chart
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.
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