- EUR/USD may be increasing pressure because the American dollar remains supported by encouraging development in US-Chin trade talks.
- The US and China reached a preliminary agreement to significantly reduce the tariffs, signaling potential relief of commercial tensions.
- The European Central Bank may extend its cycle of monetary fluctuations in response to decreasing inflation pressure.
EUR/USD opened from a stubborn gap on Tuesday during an Asian session, trading near 1,1110 after losses by more than 2.5% in the previous session. The couple faced the challenges when the US dollar (USD) strengthened trade negotiations in the United States (USA) -china.
On the weekend, the United States and China reached a preliminary agreement in Switzerland, aimed at significantly reduced tariffs, signaling potential deestering of commercial tension. Pursuant to the US agreement, they will reduce the tariffs to Chinese goods from 145% to 30%, while China will reduce duties on US import from 125% to 10%. Development was well received by markets as a step towards stabilizing global trade relations.
Note is now addressing the upcoming American report of the consumer price index (CPI) on April, later on Tuesday. Economists expect the inflation header to boost to 0.3% of the month from -0.1% earlier, while it is expected that Core CPI will boost to 0.3% from 0.1%. Every year, it is expected that both measures will remain unchanged.
Meanwhile, the euro (EUR) remains under pressure from the growing expectations that the European Central Bank (EBC) can extend its cash facilitation cycle in response to weakening inflation. Several EBC officials suggested further reductions in rates, citing constant commercial uncertainty and a lasting trend of disinflation.
However, a member of the management board of ECB Isabel Schnabel on Friday offered a more cautious perspective in a speech at Stanford University. She claimed that the current rates were appropriate and should remain on a neutral territory. Schnabel also warned against the average risk of inflation potentially violating the 2% ECB goal due to continuous global economic interference.
FAQ euro
The euro is the currency of 19 European Union countries, which belong to the euro area. This is the second most frequently commercial currency in the world behind the American dollar. In 2022, it accounted for 31% of all currency transactions, with an average daily turnover of over USD 2.2 trillion per day. EUR/USD is the most rotating currency pair in the world, which is about a 30%discount on all transactions, followed by EUR/JPy (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (EBC) in Frankfurt, Germany is a bank reserve bank. EBC sets interest rates and manages monetary policy. The main mandate of the ECB is to maintain price stability, which means either controlling inflation or stimulating growth. Its main tool is to boost or reduce interest rates. Relatively high interest rates – or waiting for higher feet – will usually bring the benefits of the euro and vice versa. The ECB Managing Council makes decisions regarding monetary policy at meetings taking place eight times a year. Decisions are made by the heads of national banks of the euro area and six constant members, including the President of EBC, Christine Lagarde.
Data on inflation in the euro area, measured by a harmonized consumer price indicator (HICP), are an crucial econometric for the euro. If inflation increases more than expected, especially if it is above the target 2% EBC, it obliges EBC to raise interest rates to restore it to control. Relatively high interest rates compared to its counterparts will usually benefit the euro, because it makes the region more attractive as a place for global investors to park their money.
The data release the health of the economy and can affect the euro. Indicators such as GDP, PMI production and services, surveys regarding employment and consumer moods can affect the direction of the common currency. A sturdy economy is good for the euro. It not only attracts more foreign investment, but can encourage EBC to set interest rates, which will directly strengthen the euro. Otherwise, if economic data is feeble, the euro will probably fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are particularly significant because they constitute 75% of the euro area economy.
Another significant issue of data for the euro is the commercial balance. This indicator measures the difference between what the country earns on exports and what spends on imports in a given period. If the country generates a highly sought after export, its currency will gain value only from additional demand created by foreign buyers trying to buy these goods. Therefore, a positive net trade balance strengthens currency and vice versa for a negative balance.
