EUR/USD trades below 1.1250, eases due to ECB dovish signals
- EUR/USD faces pressure after ECB’s Rehn suggested that the central bank could consider cutting interest rates at its upcoming meeting.
- The risk-sensitive Euro found some support from renewed optimism around US-China trade talks held in Geneva.
- Investors now look to Washington’s response to the European Commission’s proposed countermeasures against US tariffs.
EUR/USD is retreating from gains posted in the previous session, trading near 1.1240 during Monday’s Asian session. The Euro (EUR) faces pressure as European Central Bank (ECB) official Olli Rehn indicated last week that the ECB may consider cutting interest rates at its next meeting—provided upcoming forecasts confirm a continued disinflation trend and slowing economic growth.
Despite this, the EUR/USD pair found some support from optimism surrounding US-China trade talks held in Geneva. Both sides reported “substantial progress” after two days of negotiations aimed at de-escalating the ongoing trade dispute. China’s Vice Premier He Lifeng called the discussions “an important first step” in stabilizing bilateral relations, while US Treasury Secretary Scott Bessent echoed the sentiment, citing meaningful progress.
Markets now await Washington’s response to the European Commission’s proposed countermeasures against US tariffs. On Thursday, the Commission launched a public consultation outlining potential tariffs on up to €95 billion worth of US imports should trade negotiations break down.
Meanwhile, the US economic outlook remains uncertain. Federal Reserve (Fed) officials have flagged the risk of stagflation, with Governor Michael Barr warning that rising tariffs could disrupt supply chains—pushing inflation higher while dampening growth and increasing unemployment. Investors remain cautious, as further escalation in trade tensions could pose serious challenges to the US economy.
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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