- The EUR/USD has shown solid trading after Monday’s rebound, hovering around 1.1700 despite increasing trade tensions between the US and EU.
- President Trump has proposed raising the baseline tariff rate on EU imports from 10% to between 15% and 20%.
- Both the European Central Bank (ECB) and the Federal Reserve are expected to maintain their interest rates during this month’s policy meetings.
The EUR/USD pair is maintaining gains around 1.1700 as trading continues in the Asia session on Tuesday. A sharp revision of the US dollar (USD) has boosted major currency pairs, which are experiencing significant corrections, coinciding with a new round of trade tensions between the US and the EU.
On Tuesday, the US Dollar Index (DXY), which measures the dollar’s value against six major currencies, was trading near 97.88. The index has seen a drop from its peak over the past month, particularly in the last couple of trading days.
Reportings from the Wall Street Journal (WSJ) indicated that President Trump has asked for higher baseline tariffs, suggesting a rate of 15% to 20% instead of the current 10%. Furthermore, he appears hesitant to reduce the 25% tariffs on cars.
This situation has prompted EU officials to speed up plans for retaliation to safeguard their interests. Germany, once a more cautious voice within the bloc, is now aligning with France and other nations to adopt a tougher stance. In fact, Bloomberg noted a sentiment of “If they want war, they’ll get war.”
Domestically, investors are looking forward to the monetary policy decision from the ECB, which is set to be revealed on Thursday. While it’s almost certain that the ECB will keep its major borrowing rates unchanged, stakeholders will be paying close attention to the accompanying monetary policy statement and President Christine Lagarde’s press conference for cues regarding interest rates for the upcoming year.
Meanwhile, in the US, traders are optimistic that the Federal Reserve will maintain current interest rates, which are between 4.25% and 4.50%, during the policy meeting next week.
