EUR/USD rises to near 1.1400 as Trump extends tariff deadline on EU imports
- EUR/USD gains ground as President Trump extends the 50% tariff deadline on the EU imports until July 9.
- President Ursula von der Leyen said that the EU was prepared to move quickly in trade negotiations with the US.
- US markets continue to suffer as Moody’s downgraded the US credit rating.
EUR/USD extends its gains for the second successive session, trading around 1.1390 during the Asian hours on Monday. The Euro (EUR) gains ground as Bloomberg reported that US President Donald Trump agreed to extend the 50% tariff deadline on the European Union (EU) until July 9. On Sunday. European Commission President Ursula von der Leyen posted on social media that the EU was ready to move quickly in trade talks with the United States (US) but requires more time to reach a deal. US markets will be closed due to the Memorial Day holiday on Monday.
On Friday, President Trump threatened in a post on Truth Social to impose 50% tariffs on imports from the European Union as Brussels sent a not-so-good trade proposal to Washington. Trump said, "Our discussions with them are going nowhere! Therefore, I am recommending a straight 50% tariff on the European Union, starting on June 1, 2025.”
Additionally, the EUR/USD pair appreciates as the US Dollar (USD) continues to lose ground due to the uncertainty surrounding US economy. US fiscal deficit could increase further when Trump's “One Big Beautiful Bill” goes through the Senate floor, increasing the risk of bond yields staying higher for longer. Higher bond yields can keep borrowing costs higher for consumers, businesses and governments.
US markets remains under pressure amid deteriorating US debt profile as Moody’s downgraded the US credit rating from Aaa to Aa1. Moody’s now projects US federal debt to climb to around 134% of GDP by 2035, up from 98% in 2023, with the budget deficit expected to widen to nearly 9% of GDP.
Fed officials continue to favor keeping rates on hold due to lingering uncertainty over Trump’s tariff policies. On Friday, Chicago Federal Reserve (Fed) President Austan Goolsbee said that Trump’s latest tariff threats likely postpone changes to interest rates. Meanwhile, Kansas City Fed President Jeffrey Schmid noted that policymakers will gauge hard data before formulating interest rate decisions, and the Fed needs to be careful how much emphasis it puts on soft data.
Euro FAQs
The Euro is the currency for the 19 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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