- EUR/USD attracts some sellers during Asian sessions, but there is no follow-through.
- USD stalls overnight pullbacks from the multi-week top and weighs the measure.
- Traders are currently looking forward to the US PCE Price Index for meaningful driving forces.
The EUR/USD pair struggled to take advantage of the previous day's three-week low, rich bounces from around the 1.0730 area, with a low edge during Friday's Asian session. Currently, spot prices are trading with a mildly negative bias below the 1.0800 mark, but the decline lacks a bearish conviction as investors await the release of the US Personal Consumption Expense (PCE) price index.
Important inflation data looks for clues regarding the Federal Reserve's future rate cut path. This plays a key role in affecting the price dynamics of short-term US dollars (USD), providing new driving forces for the EUR/USD pair. In the meantime, some relocation trades will help stall the previous day's retracement slides from their multi-week highs, serving as a headwind of spot prices. In addition to this, concerns about President Donald Trump's tariffs and potential economic fallout from the risk-off mood give some support to safe haven greenbacks.
Meanwhile, shared currencies are being hampered by the risk of further escalation of trade tensions between the US and the European Union (EU). Trump announced 25% tariffs on imported cars and light trucks starting next week on Wednesday. This comes in addition to the recent 25% flat import tax on all steel and aluminum, as well as uncertainty over Trump's mutual tariffs, which are expected to take effect from April 2nd. Meanwhile, the EU has said it will retaliate by imposing tariffs on imports from the US. This increases the risk of the EU-US trade war and puts more pressure on the EUR/USD pair.
But the meaningful US dollar appreciation seems elusive in the wake of concern that US President Donald Trump's aggressive trade policy has dented US growth and that the Fed will soon resume its fee-cutting cycle. In fact, the market is currently priced by the US Central Bank as potentially reducing borrowing costs at its June, July and October policy meetings. This will help the USD Bulls stay on the defensive and limit the shortcomings of the EUR/USD pair. Nevertheless, for the second time in a row, spot prices continue to end in red.
Euro FAQ
The euro is the currency of 19 European Union countries that belong to the eurozone. This is the world's second most frequently traded currency behind the US dollar. In 2022, it accounted for 31% of all forex trading, with an average daily turnover rate of over $2.2 trillion per day. EUR/USD is the most frequently traded currency pair in the world, with all transactions taking an estimated 30% off, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany is the reserve bank of the eurozone. The ECB sets interest rates and manages monetary policy. The ECB's main mission is to maintain price stability. This means controlling inflation or stimulating growth. Its main tool is raising or lowering interest rates. A relatively high interest rate, or higher interest rate expectation, usually brings profits to the euro and vice versa. The ECB Management Council makes monetary policy decisions at eight meetings held annually. The decision will be made by six permanent members, including the head of the national bank in the eurozone and the president of the ECB, Christine Lagarde.
Eurozone inflation data is measured by a harmonious index of consumer prices (HICP) and is an important econometric for the euro. If inflation rises more than expected, the ECB requires that interest rates be raised and reverted back to control, especially if it exceeds the ECB's 2% target. A relatively high interest rate compared to its counterpart usually benefits the euro. This is because it makes the region more attractive as a place for global investors to park their money.
The data assesses the health of the economy and could affect the euro. Indicators such as GDP, Manufacturing and Services PMIS, Employment and Consumer Sentiment Survey can all affect the direction of all currencies. A strong economy is good for the euro. It could not only attract more foreign investments, but it could also encourage the ECB to raise interest rates. This will directly strengthen the euro. Otherwise, the euro could fall if economic data is weak. Economic data for the four largest economies (Germany, France, Italy, Spain) (Germany, France, Italy, Spain) is particularly important, as it accounts for 75% of the eurozone economy.
Another important data release for the euro is trade balances. This indicator measures the difference between what a country makes from exports and what it spends on imports over a certain period of time. If a country produces highly popular exports, the currency acquires pure value from the extra demand generated from foreign buyers seeking to buy these goods. Therefore, a positive net trade balance strengthens the currency and vice versa.
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