- EUR/USD edges higher to around 1.0790 in Wednesday’s early European session.
- Trump is set to implement tariffs on US trading partners later on Wednesday.
- Eurozone inflation cooled more than expected in March, supporting the case for the ECB rate cut in March.
The EUR/USD pair trades in positive territory near 1.0790 during the early European trading hours on Wednesday. Mounting worries about the economic impact of US President Donald Trump’s erratic tariff announcements undermine the US Dollar (USD) broadly.
Trump will impose tariffs on US trade partners on Wednesday, adding to already announced duties, triggering confusion and uncertainty. The White House stated that Trump’s forthcoming tariffs will take effect right after they unveil the policies. The concerns over Trump's tariff plans widening the global trade war and triggering an economic slowdown in the United States could weigh on the Greenback and act as a tailwind for the major pair.
Looking ahead, Trump will announce his tariff policies on Wednesday during an event in the White House Rose Garden, his top spokeswoman said. Traders will also keep an eye on the US ADP Employment Change for March, which will be released later on the same day. If the report shows a stronger-than-expected outcome, this could lift the USD against the Euro (EUR).
Across the pond, Eurozone inflation eased as expected last month, adding to already widespread anticipation for another European Central Bank (ECB) interest rate cut later in April. The preliminary reading of the Harmonized Index of Consumer Prices (HICP) for the Eurozone rose 2.2% YoY in March, compared to 2.3% in February. This reading came in line with the market expectations. The cooler inflation in the Eurozone in March might weigh on the shared currency ahead of the US President Donald Trump’s announcement of reciprocal tariffs.
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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