EUR/USD edges down to near 1.1600 as US Dollar bounces back, US inflation data in focus
- EUR/USD falls marginally to near 1.1600 as the US Dollar recovers after a slight correction.
- Washington prepares to curb exports of software-powered products to China.
- Investors await the US CPI data for fresh cues on the monetary policy outlook.
The EUR/USD pair ticks lower to near 1.1600 during the late Asian trading session on Thursday. The major currency pair faces slight selling pressure as the US Dollar (USD) gains ground after Wednesday’s corrective move.
At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rises to near 99.00.
The US Dollar rebounds despite growing concerns over bilateral trade relations between the United States (US) and China. On Wednesday, a report from Reuters showed that Washington is planning to block software-powered exports to Beijing in response to export controls imposed by China on its rare earth minerals. The scope of US software export controls to China would cover a long list of goods, as a number of products are built with US software.
On the domestic front, investors await the Consumer Price Index (CPI) data for September, which is scheduled to be released on Thursday. Market participants will pay close attention to the US inflation data, as a number of economic data releases have been canceled due to the ongoing government shutdown.
The inflation data will significantly influence market expectations for the Federal Reserve’s (Fed) monetary policy outlook. According to the CME FedWatch tool, traders remain confident that the Fed will reduce interest rates in both policy meetings remaining this year.
Meanwhile, the Euro (EUR) trades broadly calm on expectations that the European Central Bank (ECB) will hold its Deposit Facility rate at 2% by the end of 2026. In the October 15-22 Reuters poll, 57% of economists voted that the ECB will not change interest rates before 2027.
Going forward, the next major trigger for the Euro will be the monetary policy announcement by the ECB on October 30.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
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