- EUR/USD is higher from 1.0790 to about 1.0790 in early European sessions on Wednesday.
- Trump is expected to implement tariffs on U.S. trading partners later Wednesday.
- Eurozone inflation cooled more than expected in March, supporting the case of ECB rate reductions in March.
The EUR/USD pair will trade in positive territory of nearly 1.0790 early in Europe's trade time on Wednesday. Concerns about the economic impact of President Donald Trump's volatile tariff announcements broadly undermines the US dollar (USD).
Trump imposed tariffs on US trading partners on Wednesday, adding already announced obligations, causing confusion and uncertainty. The White House said Trump's upcoming tariffs will take effect shortly after the policy is revealed. Concerns over Trump's tariff plans could swell the global trade war and cause a slowdown in the US economy to strain greenbacks and act as a tailwind for major pairs.
His top spokeswoman said Trump will announce his tariff policies on Wednesday at an event at the White House Rose Garden. Traders will also be paying attention to changes in US ADP employment in March, which will be released on the same day. If the report shows stronger results than expected, this will allow USD to raise the EUR.
Beyond the pond, eurozone inflation eased as expected last month, increasing the already widespread forecast for another European Central Bank (ECB) interest rate cuts in the second half of April. Preliminary readings for harmonious consumer prices (HICP) in the eurozone (HICP) rose 2.2% year-on-year compared to 2.3% in February. This reading was in line with market expectations. More cooler inflation in the eurozone in March could put pressure on shared currencies ahead of US President Donald Trump's mutual tariff announcement.
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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