• EUR/USD gains traction to around 1.1065 in Wednesday’s early European session. 
  • Trump’s new reciprocal tariffs took effect on Wednesday. 
  • ECB is expected to cut rates in April and June as tariffs threaten recession. 

The EUR/USD pair rises to near 1.1065 during the early European session on Wednesday. The US Dollar (USD) weakens against the Euro (EUR) after US President Donald Trump's tariff policy takes effect. Later on Wednesday, traders will take more cues from the release of the FOMC Minutes.  Also, the Federal Reserve's (Fed) Thomas Barkin is set to speak on the same day. 

A new round of steep tariffs imposed by Trump took effect on Wednesday morning on products imported from scores of countries around the world. Overall, imports from 86 nations face tariff increases ranging from 11% to 84%. The escalating global trade tensions and fears of a recession triggered by Trump’s tariff policy drag the USD lower and create a tailwind for EUR/USD. 

Across the pond, the rising bets that the European Central Bank (ECB) will cut borrowing costs next week and again in June as Donald Trump’s sweeping tariffs risk pushing the bloc into recession might cap the upside for the shared currency. Investors are now pricing in a nearly 90% odds of a quarter-point cut in interest rates at the next ECB rate-setting meeting on April 17, according to Bloomberg data, up from 70% before. 

Euro FAQs

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%).

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.

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.

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.

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.

Source: Fxstreet