- EUR/USD can lose ground as the US dollar stands firm before the production price index data that will be published on Wednesday.
- The Trump administration is ready to impose a “a little more than 10%” tariff for those smaller countries.
- EU officials have confirmed that negotiations to avoid US tariffs are still ongoing, although a retaliation package is being prepared.
The EUR/USD stops its five -day loss streak, quoting around 1,1610 during Wednesday’s Asian hours. The torque can be seen despite the stability of the US dollar (USD), driven by the caution of traders before the next US Production Price Index (IPP). The beige book of the Fed and industrial production will also be in the spotlight.
However, the US dollar can recover land as the US inflation report for June revived concerns about prolonged high interest rates of the Federal Reserve (Fed). The US Consumer Price (CPI) raised 2.7% year -on -year in June, coinciding with market expectations. The underlying IPC stood at 2.9%, just below the 3.0%forecast, but still significantly above the 2%target of the Federal Reserve.
The feeling of the market remains cautious in the midst of the growing uncertainty about the perspectives of tariffs. The president of the USA, Donald Trump, notified 25 countries on the new tariff rates that will enter into force on August 1, including the main commercial partners Canada, Mexico and the European Union (EU). However, Trump expressed his willingness to participate more in commercial discussions, indicating the possibility of negotiating with the European Union (EU) and other key commercial partners.
On Tuesday, Trump said he will send tariff letters soon to smaller countries, including Nations from Africa and the Caribbean, according to Reuters. Trump also declared that his administration would probably establish a “a little more than 10%” tariff for those countries.
Trump’s letter, which mentions an import tariff of 30% to the European Union, has generated concerns at the European Central Bank (ECB), which is now expected to present a more pessimistic perspective next week than the one it had in June. Despite this, traders continue to trust that the ECB will keep interest rates without changes in their next meeting.
Meanwhile, EU officials have confirmed that negotiations to avoid tariffs are still ongoing. However, a retaliation package is being prepared, which could be directed to American goods for a value of up to 72,000 million euros with tariffs, pointing to aircraft and alcohol.
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.
