EUR/USD flat lines near 1.1800 as traders brace for US PPI release
- EUR/USD holds steady around 1.1800 in Friday’s early European session.
- The EU froze the US trade deal over tariff uncertainty.
- Eurozone inflation declined to its lowest level since September 2024.
The EUR/USD pair trades on a flat note near 1.1800 during the early Asian session on Friday. The pair steadies as softer Eurozone inflation offsets US tariff uncertainties. Traders await the preliminary reading of the Consumer Price Index (CPI) from Germany on Friday for more clues about the pace of future policy easing. On the US front, the Producer Price Index (PPI) report will be released.
The US Supreme Court ruling struck down the administration's broad use of emergency powers to impose tariffs. US President Donald Trump has responded by lashing out at the court and imposing a blanket 15% levy on imports.
US Trade Representative Jamieson Greer stated on Wednesday that Trump plans to raise this rate to 15% for many countries in the coming days. This authority is limited to a 150-day window unless extended by Congress. A rapid series of policy shifts could exert some selling pressure on the Greenback and create a tailwind for the major pair.
The European Union (EU) lawmakers decided on Monday to delay the approval of the bloc's trade deal with the US due to uncertainty over Trump's tariff policy. "We look forward to our American counterparts explaining to us precisely what is happening," said European Commission spokesman Olof Gill.
Across the pond, Eurozone inflation fell to 1.7% in January, marking a 16-month low. Core inflation also eased to 2.2% YoY during the same period. These readings have fueled expectations that the European Central Bank (ECB) may adopt a more dovish stance, which could weigh on the shared currency against the USD.
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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