- The EUR/USD could be under renewed pressure as the US dollar remains backed by encouraging developments in commercial conversations between the US and China.
- USA and China have reached a preliminary agreement to significantly reduce tariffs, pointing out a possible relaxation of commercial tensions.
- The European Central Bank could prolong its monetary relaxation cycle in response to the decrease in inflationary pressures.
The EUR/USD opened with a bullish hole on Tuesday during the Asian session, quoting near the level of 1,1110 after suffering losses of more than 2.5% in the previous session. The pair faced challenges as the US dollar (USD) was strengthened thanks to progress in commercial negotiations between the United States (USA) and China.
During the weekend, the United States and China reached a preliminary agreement in Switzerland aimed at significantly reducing tariffs, pointing out a possible unworthy in commercial tensions. According to the agreement, the US will reduce tariffs on Chinese products from 145% to 30%, while China will cut tariffs on US imports from 125% to 10%. Development has been well received by markets as a step towards stabilization of global commercial relations.
The attention now focuses on the next US Consumer Price Index (CPI) for April, which will be published later on Tuesday. Economists expect general inflation to bounce at 0.3% month by month from -0.1% previous, while it is projected that the underlying IPC also increases 0.3% from 0.1%. In interannual terms, both measures are expected to remain unchanged.
Meanwhile, the euro (EUR) remains under pressure amid increasing expectations that the European Central Bank (ECB) could extend its monetary relaxation cycle in response to the decrease in inflation. Several ECB officials have suggested more rate cuts, citing persistent commercial uncertainties and a trend of sustained disinflation.
However, the member of the ECB Executive Council, Isabel Schnabel, offered a more cautious perspective in a speech at Stanford University on Friday. He argued that current rates are appropriate and should remain in neutral territory. Schnabel also warned about the medium -term inflationary risks that could exceed the 2% objective of the ECB due to the continuous global economic interruptions.
Euro Faqs
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.
