- The EUR/USD loses land about 1,1680 in the Asian session on Friday.
Trump said the EU would receive a letter notifying them about the new rates ‘today or tomorrow.’
Holzmann of the ECB said that the Central Bank does not need to reduce the rates.
The EUR/USD pair extends the fall to around 1,1680 during Friday’s Asian negotiation hours. The euro (EUR) faces some sale pressure against the dollar after the announcement of US President Donald Trump about a new rate policy, adding uncertainty to its evolving commercial policy. The policy formulators of the European Central Bank (ECB) Fabio Panetta and Piero Cipollone will speak on Friday.
This week, Trump has sent letters to more than 20 countries establishing rates, including 50% rates on Brazil’s imports and a 35% tariff rate for imported goods from Canada. He also imposed a 50% tariff on copper imports that will enter into force on August 1. Trump added that the members of the European Union (EU) would receive letters by notifying them about the new “today or tomorrow.”
The operators will closely monitor the developments around the Tariffs policy between the US and the EU, since the block is the largest commercial partner of the United States. Any sign of renewed commercial tensions or uncertainty about fees could undermine the shared currency in the short term.
The ECB is likely to remain cautious with respect to the reduction of interest rates, which could help limit EUR losses. The Governing Council member of the ECB, Robert Holzmann, said on Wednesday that the Central Bank does not need to continue with the flexibility of politics, since financing costs may already be providing stimulus to the economy.
Meanwhile, the ECB policy formulator, Joachim Nagel, one of the most aggressive members of the ECB, said that “augmented uncertainty will not disappear quickly.” Therefore, the Central Bank “would do well to act with prudence and make decisions dependent on the data based on each meeting.” The cautious posture of the ECB on the feat cuts could strengthen the EUR in front of the USD.
EURO – FREQUENT QUESTIONS
The euro is the currency of the 19 countries of the European Union that belong to the Eurozone. It is the second most negotiated currency in the world, behind the US dollar. In 2022, it represented 31 % of all foreign exchange transactions, with an average daily business volume of more than 2.2 billion dollars a day. The EUR/USD is the most negotiated currency pair in the world, with an estimate of 30 %of all transactions, followed by the EUR/JPY (4 %), the EUR/GBP (3 %) and the EUR/AU (2 %).
The European Central Bank (ECB), based in Frankfurt (Germany), is the Eurozone reserve bank. The ECB establishes interest rates and manages monetary policy. The main mandate of the ECB is to maintain price stability, which means controlling inflation or stimulating growth. Its main tool is the rise or decrease in interest rates. Relatively high interest rates (or the expectation of higher types) usually benefit the euro and vice versa. The GOVERNMENT BOOK of the ECB makes decisions about monetary policy in meetings that are held eight times a year. The decisions are made by the directors of the National Banks of the Eurozone and six permanent members, including the president of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the harmonized consumer prices index (IPCA), are an important economic indicator for the euro. If inflation increases more than expected, especially if it exceeds 2% of the ECB, it forces the ECB to rise interest rates to control it again. Relatively high interest rates compared to their counterparts usually benefit the euro, since they make the region more attractive as a place for global investors to deposit their money.
Published data measure the health of the economy and can have an impact on the euro. Indicators such as GDP, manufacturing and services PMIs, employment and consumer trust surveys can influence the direction of the single currency. A strong economy is good for the euro. Not only attracts more foreign investment, but it can encourage the ECB to raise interest rates, which will directly strengthen the euro. Otherwise, if economic data is weak, the euro is likely to fall. The economic data of the four largest economies in the euro zone (Germany, France, Italy and Spain) are especially significant, since they represent 75% of the economy of the euro area.
Another important fact that is published on the euro is the commercial balance. This indicator measures the difference between what a country earns with its exports and what you spend on imports during a given period. If a country produces highly demanded export products, its currency will gain value simply by the additional demand created by foreign buyers seeking to buy those goods. Therefore, a positive net trade balance strengthens a currency and vice versa in the case of a negative balance
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
