- EUR/USD weakened despite a softer US Dollar, as escalating trade tensions between the US and China weighed on market sentiment.
- German Chancellor-in-waiting Friedrich Merz warned, "President Trump’s policies are heightening the risk of an earlier-than-expected financial crisis.”
- Fed’s Kashkari noted that the economic impact of Trump’s trade war would hinge on how trade uncertainties are resolved.
The EUR/USD pair edges lower during Asian trading hours on Monday, hovering around 1.1360 after posting gains in the previous two sessions. The pair appreciated due to weakening US Dollar (USD), which has come under pressure amid escalating trade tensions between the US and China—rekindling concerns of a global recession.
China's Ministry of Finance announced a sharp hike in tariffs on US goods on Friday, increasing duties to 125% from 84%. This move came in response to US President Donald Trump’s decision a day earlier to raise tariffs on Chinese imports to 145%. Meanwhile, to de-escalate trade friction, the European Union (EU) announced a 90-day suspension of its planned retaliatory tariffs, echoing a similar pause by Washington to encourage renewed dialogue.
In an interview with Handelsblatt on Saturday, German Chancellor-in-waiting Friedrich Merz expressed concern over Trump’s economic approach, stating, “President Trump’s policies are increasing the risk that the next financial crisis will hit sooner than expected.” Merz also voiced support for a new transatlantic trade agreement, adding, “Zero percent tariffs on everything—that would be better for both sides.”
The US Dollar Index (DXY), which tracks the USD against a basket of six major currencies, extended its losses for the third consecutive session, slipping below 100.00 and nearing Friday’s three-year low. The continued decline reflects eroding investor confidence amid downbeat economic indicators and dovish central bank commentary.
The University of Michigan’s sentiment index dropped to 50.8 in April, while one-year inflation expectations surged to 6.7%. The US Producer Price Index (PPI) rose 2.7% year-over-year in March, down from 3.2% in February, with the core rate easing to 3.3%. Jobless claims ticked up to 223,000, although continuing claims declined to 1.85 million—pointing to a mixed picture in the labor market.
On Sunday, Minneapolis Federal Reserve President Neel Kashkari said on CBS' Face the Nation that the economic fallout from Trump’s trade war would largely depend on how quickly trade uncertainties are resolved. “This is the biggest hit to confidence that I can recall in the 10 years I’ve been at the Fed—except for March 2020 when COVID first hit,” Kashkari remarked.
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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