EUR/USD gains above 1.1600 as Europe pushes back on Trump’s tariff threat
- EUR/USD drifts higher to near 1.1625 in Monday’s early European session.
- Europe is prepared to push back on Monday after Trump announced a 10% tariff on goods from European countries.
- Traders expect the Fed to hold rates steady at its January meeting due to a stable labor market and persistent inflation.
The EUR/USD pair gains ground to around 1.1625, snapping the four-day losing streak during the early European session on Monday. The US Dollar (USD) faces some selling pressure against the Euro (EUR) after U.S President Donald Trump threatened escalating tariffs on eight European nations that have opposed his plan to take Greenland. US markets are closed on Monday as the country observes Martin Luther King Jr. Day.
Trump on Saturday announced a 10% tariff on goods from European countries, including Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland, and the United Kingdom (UK), starting from February 1 and raising the levy to 25% in June until “a Deal is reached for the Complete and Total purchase of Greenland.”
Europe is prepared to push back on Monday after Trump slapped additional levies on allies. European leaders are set to hold an emergency meeting in the coming days as they explore possible retaliation. Concerns over the renewed trade war and the long-term impact of Trump's latest move drag the Greenback lower and act as a tailwind for the major pair.
"While you would argue that the tariffs threaten Europe, in fact, it's actually the dollar that is bearing the brunt of it, because I think markets are pricing in increased political risk premia on the U.S. dollar," said Khoon Goh, head of Asia research at ANZ.
Nonetheless, improving US labor market data last week have pushed back expectations of further Federal Reserve (Fed) rate cuts until June. This, in turn, could help limit the USD’s losses. Financial markets are now pricing in nearly a 95% chance of no change to the benchmark rate at the FOMC meeting on January 27-28, 2026, according to the CME FedWatch tool.
Euro FAQs
The Euro is the currency for the 20 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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