- EUR/USD again dipped towards the low end on Thursday, approaching 1.1200.
- The US dollar is currently trending upwards, following the expected announcement of trade deals between the US and the UK.
- While the trade agreement hasn’t been officially announced yet, there’s hope among investors for a reduction in tariffs.
The EUR/USD rate fell on Thursday, losing over two-thirds of 1% from the opening bid. This drop came after a notable surge in USD bids linked to a tentative trade deal between the US and the UK. It seems Europe is still at odds with the Trump administration, with White House officials cautioning the European Union against retaliating against US import tariffs.
The trade agreement with the UK allows it to sidestep steep mutual tariffs that President Trump plans to reinstate on July 9, having temporarily delayed his own tariffs. However, market sentiment might soon deteriorate due to a looming 10% tariff on all imports from the UK to the US. Currently, the Trump administration has paused tariffs on crucial imports like advanced ethanol, which has reportedly not been imported from the UK in over 15 years.
EUR/USD price outlook
EUR/USD has recently found a temporary bottom just above 1.1200, but the price action struggles to establish a firm position around 1.1300. The currency pair has declined from a high of just over 1.1500 a few months ago, yet the downward pressure remains somewhat limited as traders react to key market changes.
EUR/USD Daily Chart
Euro FAQ
The euro is the currency used by 19 countries in the eurozone, and it’s the second most traded currency globally, following the US dollar. In 2022, it represented 31% of all Forex trading, with a daily turnover exceeding $2.2 trillion. The EUR/USD pair is the most traded globally, making up an estimated 30% of transactions, followed by EUR/JPY, EUR/GBP, and EUR/AUD.
The European Central Bank (ECB), located in Frankfurt, Germany, manages the eurozone’s monetary policy and sets interest rates. Its primary goal is to maintain price stability, balancing inflation control with growth stimulation. Interest rates are the main tool used, and a relatively high rate tends to benefit the euro. Monetary policy decisions are made at eight annual meetings by a council that includes six permanent members, among them the head of each national bank in the eurozone and the ECB president, Christine Lagarde.
Inflation data in the eurozone is measured using the Harmonized Index of Consumer Prices (HICP). It plays a significant role in the euro’s valuation. If inflation exceeds expectations, the ECB is likely to raise interest rates to regain control, especially if it surpasses the 2% target. A higher interest rate compared to competitors usually strengthens the euro, as it makes the currency more attractive for global investors.
Economic health data can significantly influence the euro. Metrics like GDP, Manufacturing and Services PMIs, employment rates, and consumer sentiment can determine currency trends. A strong economy is beneficial for the euro, potentially increasing foreign investment and encouraging the ECB to raise interest rates, thereby strengthening the euro. Conversely, weak economic data can lead to a decline in the euro’s value. The performance of the largest eurozone economies, like Germany, France, Italy, and Spain, is especially critical, as they account for about 75% of the eurozone’s economy.
Trade balances are another key indicator for the euro, measuring the difference between exports and imports over a period. A country that produces globally sought after exports tends to see its currency strengthen, as foreign demand increases. Thus, a positive net trade balance enhances the currency’s value and vice versa.
