EUR/USD rises to near 1.1700 due to Trump’s tariff threats on European Union
- EUR/USD gains ground as the US Dollar declines due to rising global trade tensions.
- Trump announced that a 30% tariff on imports from the European Union and Mexico will take effect on August 1.
- The European Union announced that it will extend its suspension of retaliatory measures against US tariffs until early August.
EUR/USD halts its three-day losing streak, trading around 1.1700 during the Asian hours on Monday. The pair gains ground as the US Dollar (USD) loses ground due to escalating global trade tensions. On Saturday, US President Donald Trump announced a 30% tariff on imports from the European Union (EU) and Mexico starting August 1. He also proposed a blanket tariff rate of 15%-20% on other trading partners, an increase from the current 10% baseline rate.
In response, the European Union announced on Sunday that it will extend its pause on retaliatory measures against US tariffs until early August, in hopes of reaching a negotiated agreement. EU Commission President Ursula von der Leyen emphasized the bloc’s “two-track” strategy, continuing dialogue while preparing for possible retaliation.
German Chancellor Friedrich Merz expressed strong commitment to securing a deal, warning that a 30% tariff would hit “at the core” of Germany’s export-driven economy. Von der Leyen added that the EU’s Anti-Coercion Instrument, which enables robust countermeasures, remains off the table for now, stating, “we are not there yet.”
However, the upside of the EUR/USD pair could be restrained as the US Dollar may regain is ground amid traders adopting caution on sentiment surrounding the US Federal Reserve (Fed) to hold interest rates steady as it waits to see the impact of tariffs on price pressures. Chicago Fed President Austan Goolsbee stated that ongoing trade policy at the hands of Trump's constant tariff threats could hamper the ability of the Fed to deliver rate reductions that both the broader market and Trump himself want to see.
The US government posted a $27 billion budget surplus in June, fueled by a surge in customs duties revenue, which reached a record $27.2 billion. This jump in tariff collections, largely stemming from policies introduced during the Trump administration—contributed to a 13% increase in total budget receipts, which rose to $526 billion. Meanwhile, federal spending declined by 7% to $499 billion.
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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