The euro (EUR) saw an increase against the US dollar (USD) on Tuesday, recovering from earlier dips as the dollar weakened due to escalating US-China trade tensions and growing expectations for a softer approach from the Federal Reserve. Currently, EUR/USD is around 1.1600, bouncing back from intraday lows near 1.1542.
Meanwhile, political developments in France are adding uncertainty to the euro’s outlook after Prime Minister Sébastien Lecornu’s sudden resignation was followed by his rapid reappointment. He’s now facing significant challenges in getting the 2026 budget approved.
In a speech to Parliament, Lecornu remarked, “We are living in a time of crisis. Parliament ultimately decides on the budget. The government will pause pension reform until the next presidential election.” He later mentioned that this suspension would likely require austerity measures, emphasizing the delicate state of the government’s finances.
On the other side, officials from the European Central Bank (ECB) expressed cautious optimism on Tuesday. President Christine Lagarde stated that the ECB is in “generally good shape,” while noting that risks to the economic outlook are becoming “more balanced.” Lagarde also mentioned that the bank needs to remain prepared for unforeseen challenges, adding, “I wouldn’t say we are done with rate cuts,” which keeps the door open for further changes if necessary. In a different statement, ECB Governing Council member Gabriel Makhlouf pointed out the resilience of Europe’s economy, asserting that inflation is currently “where we want it to be.”
Market sentiment shifted to a more cautious tone after China implemented new port fees on vessels linked to the U.S., mirroring moves previously made by the U.S. against Chinese ships. This latest friction follows China tightening its regulations on rare earth exports and U.S. President Donald Trump announcing that all Chinese imports will face full tariffs starting November 1.
U.S. Trade Representative Greer warned on Tuesday that additional tariffs “could come sooner” and pointed out that the U.S. government has export controls it could impose if needed. Investors were reminded that tensions could escalate again in the trade realm.
Now, all eyes are on Federal Reserve Chairman Jerome Powell, who is expected to speak later in the day, providing fresh insights on the future of monetary policy. Powell is slated to address the National Association for Business Economics (NABE) annual meeting in Philadelphia at 6:20 p.m. Japan time. Earlier, Fed Governor Michelle Bowman indicated that she anticipates “two more rate cuts by year-end.”
