- The EUR/USD stiffens at nearly 1.1520 in early Asian sessions on Tuesday.
- The US dollar will fall significantly after Trump doubles its Fed attack on Powell.
- The EU is considering changing the methane rules for US gas to support trade talks.
The EUR/USD pair will extend its rise to around 1.1520 while under pressure with weaker US dollars (USD) during the early Asian sessions on Tuesday. The US Dollar Index (DXY) fell to its lowest since March 2022, nearly 98.30 as traders continued to lose confidence in the US economy.
US President Donald Trump on Monday bolstered criticism of Federal Reserve Chairman Jerome Powell via social media, calling him a “major loser,” warning that the US economy could slow if the Fed doesn’t move to cut quickly. The slowdown in the US, the world’s biggest economy, and concerns that Trump could fire FRED’s Powell put sales pressure on Greenback and serves as a tailwind for EUR/USD.
“It’s really a buffet for the dollar bear… even before Powell News, from growing uncertainty about self-harm from tariffs to loss of faith.”
Additionally, the European Union is considering tweaking methane rules to help US gases in trade negotiations, Reuters reported on Monday. The European Commission is working on a trade talks offer with the US to avoid Trump’s planned tariffs, with both sides informing them that energy can form part of a broader trade agreement. Optimism surrounding trade negotiations could provide some support to the shared currency for USD in the short term.
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 benefits the euro and vice versa. The ECB Management Council makes monetary policy decisions at its eight meetings held annually. The decision will be made by six permanent members, including the head of the national bank in the eurozone and Christine Lagarde, the president of the ECB.
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.
