EUR/USD rockets to near 3-year high as US PPI cools, tariff jitters bruise USD
- US PPI and CPI undershoot, reinforcing disinflation narrative and hammering the Greenback.
- Trump’s unilateral tariff threat deepens US Dollar rout and stokes fresh demand for higher-yielding currencies.
- ECB’s Schnabel signals easing cycle ending, sending Euro toward three-year highs despite soft data.
EUR/USD advances for the second consecutive day, posting gains of over 0.70% and trades below the three-year high of 1.1631 hit earlier, as traders digest the latest Producer Price Index (PPI) report in the United States (US), alongside jobs data.
At the time of writing, the pair trades at 1.1575 after the US Bureau of Labor Statistics (BLS) reported that the Producer Price Index (PPI) in May indicated continued disinflation, aligning with the Consumer Price Index (CPI) report released on Wednesday. Jobs data revealed that more people are applying for unemployment benefits in the US.
The US Dollar extended its losses on the data, with the EUR/USD climbing past 1.1600. Furthermore, US President Donald Trump rattled the financial markets as he said he would send letters to countries, setting unilateral tariff rates ahead of a July 9 deadline set on Liberation Day.
Across the pond, several European Central Bank (ECB) speakers were hawkish, led by Isabel Schnabel, who said the monetary policy [easing] cycle is coming to an end, adding that financial conditions are no longer restrictive.
On Friday, the Eurozone (EU) economic docket will feature the inflation reports for Germany and France for May. At the same time, EU Industrial Production is expected to continue slowing down in both yearly and monthly figures.
In the US, the schedule will feature the University of Michigan (UoM) Consumer Sentiment for June, alongside household inflation expectations.
Daily digest market movers: EUR/USD rallies on weak US Dollar, cool PPI report
- EUR/USD appears poised to remain within the 1.1500-1.600 range in the near term, as positive news about US-China talks could increase appetite for riskier assets. Trump’s controversial decisions triggered the “Sell America“ trade for the first time in the week.
- US Producer Price Index (PPI) rose 2.6% YoY in May, slightly above April’s 2.5%. Core PPI eased to 3% from 3.1%. On a monthly basis, headline and core PPI both rose 0.1%, below expectations, reflecting subdued inflation pressure.
- ECB's Villeroy says a 5.4% budget deficit in 2025 remains in reach, even with lowering forecasts. ECB's Patsalides says the ECB is flexible and agile on rates.
- ECB's Simkus says rates may still need to come down as the risk has increased that inflation will be below projections. He added that the ECB has arrived at a neutral rate.
- Financial market players do not expect that the ECB will reduce its Deposit Facility Rate by 25 basis points (bps) at the July monetary policy meeting.
Euro technical outlook: EUR/USD hit almost three-year high past 1.1600
The EUR/USD uptrend is in place, and clearing the 1.1600 figure has opened the door to challenge the 1.1650 figure, ahead of 1.1700. The pair has reached a series of successive higher highs and higher lows, while the Relative Strength Index (RSI) indicates that buyers are in control, suggesting further upside potential.
On the other hand, if the EUR/USD loses bullish momentum and drifts below 1.1550, expect a pullback toward 1.1500. A breach of the latter will expose 1.1450, clearing the path for further downside. The following key support levels to be tested are the 20-day Simple Moving Average (SMA) at 1.1366 and the 50-day SMA at 1.1304 ahead of 1.1300.
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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