EUR/USD remains stronger near 1.1750 as US Dollar weakens, Germany's ZEW index surges
- EUR/USD extends gains for the third successive day amid rising geopolitical tensions.
- President Trump reiterated his Greenland ambitions and threatened a 200% tariff on French wines.
- The Euro gained support as Germany’s ZEW Economic Sentiment Index surged to 59.6 in January.
EUR/USD extends its gains for the third consecutive session, trading around 1.1730 during the Asian hours on Wednesday. The pair appreciates as the US Dollar (USD) continues to lose ground amid rising United States (US)–Greenland concerns.
US President Donald Trump said there is “no going back” on his ambitions regarding Greenland, alongside earlier threats to impose new 10% tariffs on eight European Union (EU) countries, fuelling concerns over slower economic growth. Additionally, Trump threatened a 200% tariff on French wines as President Emmanuel Macron refrained from joining Trump's "Board of Peace".
The European Parliament plans to suspend approval of the US trade deal agreed in July, with the decision set to be announced on Wednesday in Strasbourg, France. An escalation in US–Europe tensions.
The downside of the Greenback could be restrained as the latest US labor market data have pushed back expectations for further Federal Reserve (Fed) rate cuts until June. Fed officials have signaled little urgency to ease policy further until there is clearer evidence that inflation is sustainably moving toward the 2% target.
The Euro (EUR) receives support against its peers despite increased risk aversion, supported by stronger-than-expected German economic data. Germany’s ZEW Economic Sentiment Index surged to 59.6 in January, its highest since July 2021 and well above the 50 forecast, signalling optimism for a 2026 economic turnaround despite uncertainty over US trade policy.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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