EUR/USD breaks above 1.1500 as Trump mulls over Powell’s removal
- EUR/USD passes 1.1550 as US President Trump aims to remove Fed Chair Powell for not reducing interest rates.
- Escalating questions over the Fed’s independence have increased doubts over the USD’s credibility.
- The ECB is expected to cut interest rates again in the June meeting.
EUR/USD rallies to near 1.1570 at the start of the week, the highest level seen in three-and-a-half years. The major currency pair strengthens as the US Dollar (USD) falls further due to escalating doubts over its safe-haven status. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, refreshes a three-year low near 98.00.
The remarks over Federal Reserve (Fed) Chair Jerome Powell’s termination by United States (US) President Donald Trump have shaken the credibility of the US Dollar and US assets, which had already faltered due to erratic headlines over tariff policies by Washington.
On Friday, US President Trump argued to replace Jerome Powell for not reducing interest rates despite lowering Oil and grocery prices. "The Fed really owes it to the American people to get interest rates down. That’s the only thing he’s good for," Trump said and added, "I am not happy with him. If I want him out of there, he’ll be out real fast, believe me."
Fears of the ousting of Jerome Powell and an eventual consequence on the independence of the Fed escalated after White House economic adviser Kevin Hassett confirmed that the President and his team are looking for possible ways to fire Powell. "The President and his team will continue to study that matter," Hassett said on Friday.
On that matter, Chicago Fed Bank President Austan Goolsbee said in an interview with CBS’s "Face the Nation" on Sunday that we should not move ourselves into an environment where “monetary independence” is in question, warning that it would undermine the “credibility of the central bank”. Goolsbee added that economists agree that central banks that have the “ability to conduct monetary policy with no political tampering” have “better outcomes for their economies”.
Daily digest market movers: EUR/USD gains on Euro’s outperformance
- Sheer strength in the EUR/USD pair is also driven by the Euro’s (EUR) outperformance, which has come irrespective of increasing European Central Bank (ECB) dovish bets.
- Financial market participants expect the ECB to cut interest rates again in the June policy meeting due to firming fears of Eurozone inflation undershooting the central bank’s target of 2% in the face of Trump’s international policies. Traders see a 75% chance of an interest rate cut in June, up from 60% after the ECB’s dovish decision on Thursday, Reuters report. Analysts at Citi anticipated price growth of 1.6% next year and 1.8% in 2027 last week before the ECB’s interest rate decision on Thursday.
- Last week, the ECB reduced its key borrowing rates by 25 basis points (bps) for the sixth time in a row and seventh in the current monetary easing cycle to stimulate the economy against potential economic slowdown. ECB President Christine Lagarde guided a grim economic outlook. “The economic outlook is clouded by uncertainty as trade disruptions would weigh on business investment," Lagarde said.
- The central bank omitted its comment that interest rates are still restrictive after a long time, suggesting that it could slow down its monetary expansion cycle.
- Meanwhile, progressive trade talks between the Eurozone and the US have also offered some strength in the Euro. Earlier in the day, Reuters reported that the European Union (EU) is contemplating options to alter its methane emissions rules, making it easier for the US to comply with its Gas exports.
Technical Analysis: EUR/USD aims to extend upside to near 1.1600
EUR/USD jumps above 1.1550 and refreshes a three-and-a-half-year high on Monday. The major currency pair strengthens after a breakout above the April 11 high of 1.1474. Advancing 20-week Exponential Moving Average (EMA) near 1.0850 suggests a strong upside trend.
The 14-week Relative Strength Index (RSI) climbs to overbought levels around 75.00, which indicates a strong bullish momentum, but chances of some correction cannot be ruled out.
Looking up, the round-level figure of 1.1600 will be the major resistance for the pair. Conversely, the July 2023 high of 1.1276 will be a key support for the Euro bulls.
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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