EUR/USD rallies to fresh multi-year highs as Trump threatens Fed independence
- The Euro rallies to multi-year highs on the US Dollar's weakness after Trump attacks Powell.
- Investors' concerns about the independence of the Federal Reserve are undermining confidence in the Dollar.
- EUR/USD has reached the target of a bullish flag at 1.1700.
The EUR/USD appreciates on Thursday for its sixth consecutive day and is trading near the 1.1700 area at the time of writing, at its highest levels since September 2021. News reports that US President Donald Trump is considering an early announcement of the Federal Reserve (Fed) Chair Jerome Powell's successor have rattled markets and sent the US Dollar (USD) tumbling.
A report by the Wall Street Journal suggests that Trump is considering announcing the name of Jerome Powell's replacement in September or October. This would be an unusual move, as Powell ends his term next May, and would create a shadow Fed Chair and undermine the central bank's credibility.
This news comes after Powell reaffirmed his cautious tone regarding further interest rate cuts in his semiannual testimony to Congress, which triggered the umpteenth attack from President Trump, calling him "terrible" and flagging that he has "three to four" candidates to replace him.
With geopolitical tensions out of the foreground, as the truce between Iran and Israel holds for its third day, Trump's erratic trade policy is back in focus. The July 9 deadline approaches, and there is no sign of progress on trade deals with key partners. This is another source of negative pressure for the US Dollar.
The US economic calendar is busy today with May's Durable Goods orders and the final reading of the first quarter's Gross Domestic Product (GDP) grabbing the focus. The highlight of the week, however, will be Friday's Personal Consumption Expenditures (PCE) Price Index. This is the Fed's inflation gauge of choice and will be observed with attention to assess Fed easing expectations.
Euro PRICE Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.37% | -0.50% | -0.69% | -0.16% | -0.37% | -0.24% | -0.37% | |
| EUR | 0.37% | -0.09% | -0.35% | 0.23% | 0.04% | 0.14% | 0.01% | |
| GBP | 0.50% | 0.09% | -0.28% | 0.32% | 0.12% | 0.24% | 0.10% | |
| JPY | 0.69% | 0.35% | 0.28% | 0.55% | 0.36% | 0.45% | 0.34% | |
| CAD | 0.16% | -0.23% | -0.32% | -0.55% | -0.20% | -0.17% | -0.22% | |
| AUD | 0.37% | -0.04% | -0.12% | -0.36% | 0.20% | 0.02% | -0.02% | |
| NZD | 0.24% | -0.14% | -0.24% | -0.45% | 0.17% | -0.02% | -0.05% | |
| CHF | 0.37% | -0.01% | -0.10% | -0.34% | 0.22% | 0.02% | 0.05% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
Daily digest market movers: Threats to Fed independence revive the "Sell America" trade
- The US Dollar has tumbled across the board as Trump's attacks on the head of the Fed undermine the credibility of the central bank and threaten the Greenback's status as the world's reserve currency. The Euro (EUR) has been one of the main beneficiaries of US Dollar weakness, with the pair appreciating nearly 2% so far this week, with no significant macroeconomic driver to support that rally.
- Data released on Thursday revealed that the German GFK Consumer Sentiment Survey deteriorated to -20.3 for July from -20 in the previous month. Germans are showing an increasing willingness to save, which weighs on consumption and highlights a sentiment of economic uncertainty.
- At 12:30 GMT, the US Durable Goods Orders, an advanced gauge for manufacturing activity, are expected to have increased by 8.5% in May after a 6.3% drop in April. Excluding transportation, however, orders for all other products are seen stalled, after a 0.2% increase in the previous month. This may offset the positive impact of an upbeat headline reading.
- At the same time, the first quarter's US GDP reading is expected to confirm a 0.2% contraction in the quarter and a 3.7% year-on-year growth. The impact of these figures is expected to be minimal unless there is a significant revision of previous estimations.
- On Wednesday, Fed Chair Jerome Powell stood firm against President Trump's pressures to cut rates and reiterated that the central bank is "well-positioned to wait" on interest rate adjustments until there is more clarity about the inflationary effects of trade tariffs.
- Trump reacted, calling Powell names again and suggesting that he has narrowed down a list of candidates to replace him. Market sources have aired the names of former Fed Governor Kevin Warsh, National Economic Council director Kevin Hassett, and Treasury Secretary Scott Bessent as the best-positioned to take the job.
EUR/USD has reached the Bullish Flag's target at 1.1700
EUR/USD rallies further on early Thursday trading, favoured by US Dollar weakness, and reaches the target of the previous two weeks' bullish flag formation, right above 1.1700. The fundamental contest remains supportive, but the 14-period Relative Strength Index (RSI) indicator on the 4-hour chart has reached overbought territory, which suggests that a consolidation or even a bearish correction is on the cards.
On the downside, the pair may find support at the previous resistance area near 1.1630 (June 12, 24 highs) ahead of 1.1585 (June 24, 25 lows) and the downward sloping trendline, now at 1.1520.
Immediate resistance is at the 1.1700 area, the 127.2% Fibonacci extension of the June 10-12 rally, and above here, 1.1795, the 161,8% Fibonacci extension of the mentioned move.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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