The EUR/USD pair seems poised for some upward movement as the new week begins, showing signs of recovery around the 1.1750-1.1740 level last Friday. This rise has lifted prices to the 1.1835 mark during the Asian session, aided by a notable drop in the US dollar.
In the midst of a legal setback, President Trump has reaffirmed his commitment to his trade policies, quickly unveiling a new 15% tariff structure. A Supreme Court ruling from Friday indicated that Trump lacks the authority to enact substantial reciprocal tariffs under the International Emergency Economic Powers Act (IEEPA). However, the hasty implementation of tariffs has raised fears regarding potential negative economic consequences, compounded by underwhelming US GDP figures which overshadowed positive inflation data. This dynamic has pulled the US dollar down from four-week highs, benefitting EUR/USD for a second consecutive day.
Early projections for the fourth-quarter GDP suggest a significant slowdown for the US economy towards the end of 2025, partly influenced by an extended government shutdown. Year-over-year growth for the October-December period significantly dropped to 1.4%, down from 4.4% in the third quarter, which was well below what analysts expected. On the other hand, the core personal consumption expenditures (PCE) price index witnessed a month-on-month increase of 0.4% in January, elevating the annual rate to 3.0%, marking the highest level since November 2023. This may allow the Federal Reserve to maintain interest rates during its upcoming March policy meeting.
Yet, traders are still considering the chance that the Federal Reserve might lower borrowing costs in June, potentially implementing at least two reductions of 25 basis points (bps) in 2026. Such a move would likely weaken the USD further, supporting EUR/USD. However, there remains uncertainty surrounding the tenure of European Central Bank President Christine Lagarde and concerns about a trade war, which might pose challenges for the euro. Notably, the European Parliament’s trade chief mentioned that the European Union plans to pause the ratification of trade agreements with the US until they receive clarity on the trade policy from the Trump administration.
