EUR/USD attracts some sellers below 1.1700 as traders await US-EU tariff deal

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The EUR/USD pair extends the decline to around 1.1680 during the Asian trading hours on Friday. The Euro (EUR) faces some selling pressure against the Greenback after US President Donald Trump announced a new tariffs policy, adding to the uncertainty around his evolving trade policy.

EUR/USD loses ground to near 1.1680 in Friday’s Asian session.
Trump said the EU would receive a letter notifying them of new tariff rates ‘today or tomorrow.’
ECB’s Holzmann said the central bank doesn’t need to reduce rates any further.

This week, Trump has sent letters to more than 20 countries establishing tariff rates, including 50% tariffs on imports from Brazil and a 35% duties rate for goods imported from Canada. He also imposed a 50% tariff on copper imports that is scheduled to take effect on August 1. Trump added that the members of the European Union (EU) would get letters notifying them of new tariff rates “today or tomorrow.”

Traders will closely monitor the developments surrounding the US-EU tariff policy as the bloc is the largest trading partner of the US. Any signs of renewed trade tensions or tariff uncertainty could undermine the shared currency in the near term.

The ECB is likely to remain cautious about reducing interest rates, which might help limit the EUR’s losses. ECB’s Governing Council member Robert Holzmann said on Wednesday that the central bank doesn’t need to continue easing policy as borrowing costs may already be providing stimulus to the economy.

Meanwhile, ECB policymaker Joachim Nagel, one of the ECB’s more hawkish members, noted that “heightened uncertainty will not quickly disappear.” Therefore, the central bank “would be well advised to act prudently and to make data-dependent decisions on a meeting-by-meeting basis.” The cautious stance on rate cuts of the ECB might strengthen the EUR against the USD.

Euro FAQs

What is the Euro?

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%).

What is the ECB and how does it impact the Euro?

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.

How does inflation data impact the value of the Euro?

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.

How does economic data influence the value of the Euro?

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.

How does the Trade Balance impact the Euro?

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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