EUR/USD rises toward 1.1400 as Trump threatens to double import tariffs on steel, aluminum
- EUR/USD appreciates as the US Dollar declines following the Trump’s announcement of doubling import tariffs on steel and aluminum.
- Trump said that he is going to increase import tariffs from 25% to 50% to secure the US steel industry.
- European Commission said that Europe was prepared to retaliate against Trump's plan to increase import tariffs on steel and aluminum.
EUR/USD retraces its recent losses registered in the previous session, trading around 1.1370 during the Asian hours on Monday. The pair appreciates as the US Dollar (USD) struggles as the US Court of Appeals, on Thursday, ruling allowing US President Donald Trump's tariffs to take effect.
On Wednesday, a three-judge panel at the Court of International Trade in Manhattan said that Trump exceeded his authority in imposing broad import tariffs and declared the executive orders issued on April 2 unlawful.
On Friday, President Trump said at a rally in Pennsylvania that he planned to double import tariffs on steel and aluminum to build up pressure on global steel producers and intensify trade war. "We are going to be imposing a 25% increase. We're going to bring it from 25% to 50% - the tariffs on steel into the United States of America, which will even further secure the steel industry in the United States," he said, per Reuters.
On Saturday, The European Commission (EC) warned that Europe was all set to hit back President Trump's plan to double tariffs on imported steel and aluminum, escalating the trade fight between two of the world's largest economic powers.
Earlier, President Trump delayed the tariff deadline on imports from the EU from June 1 to July 9. Meanwhile, the Brussels also agreed to accelerate trade talks with the United States to avoid a transatlantic trade war.
Last week, European Central Bank (ECB) Governing Council member Klaas Knot said that the current European inflation outlook is murky, challenging the central bank to engage in direct moves. ECB policymaker François Villeroy de Galhau noted that the “policy normalization in the Euro area is probably not complete.”
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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