EUR/USD sticks to positive bias above 1.1800 as trade jitters undermine USD

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The EUR/USD pair builds on the previous day's modest gains and attracts some buyers for the second straight day on Thursday amid a softer US Dollar (USD). Spot prices, however, lack bullish conviction and trade around the 1.1815-1.1820 area during the Asian session, up 0.10% for the day.

EUR/USD trades with a positive bias for the second straight day amid a softer USD.
Trump’s erratic trade policies counter the Fed’s hawkish tilt and weigh on the buck.
Bets that the ECB is done cutting rates support the EUR and further act as a tailwind.

Despite the US Federal Reserve's (Fed) hawkish outlook, the USD bulls remain on the defensive amid renewed turbulence over US President Donald Trump’s trade policies. The US moved ahead with the new 10% global levy on all non-exempt goods, as initially announced by Trump on Friday, following the Supreme Court verdict against his sweeping reciprocal tariffs. Moreover, Trump said during his State of the Union Address on Wednesday that the administration is working to raise duties to 15%.

The announcement adds to market concerns about retaliatory measures and the potential economic fallout from disruptions to global supply chains. This, along with the underlying bullish sentiment, undermines the safe-haven Greenback and turns out to be a key factor acting as a tailwind for the EUR/USD pair. Adding to this, the growing acceptance that the European Central Bank (ECB) is done cutting rates might continue to support the shared currency and back the case for further gains.

In fact, ECB President Christine Lagarde said earlier this week that the interest rate policy remains in a good place and reiterated her long-standing guidance that no policy change is being considered. Meanwhile, the European Parliament decided on Monday to postpone a vote on the European Union's trade deal with the US. This might hold back traders from placing aggressive bullish bets around the EUR/USD pair as traders now look to Lagarde's speech for a fresh impetus ahead of the US Jobless Claims.

Euro FAQs

What is the Euro?

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%).

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.