- EUR/USD edges down below 1.1300 as the US Dollar strengthens after the Fed indicated it is in no rush to cut interest rates.
- US President Trump is expected to unveil a bilateral trade agreement, reportedly with the UK, on Thursday.
- The EU prepares countermeasures against US tariffs to mitigate their economic impact.
EUR/USD is trading slightly lower, breaching the 1.1300 level during Thursday’s European trading session. This decline in the major currency pair is attributed to a modest strengthening of the US Dollar (USD), influenced by recent signals from the Federal Reserve (Fed) suggesting a lack of urgency in reducing interest rates. These signals followed the Fed’s decision on Wednesday to maintain interest rates unchanged within the 4.25%-4.50% range for the third consecutive time. Consequently, the US Dollar Index (DXY), which measures the Greenback’s performance against six major currencies, has edged higher, approaching the 100.00 mark.
During the post-meeting press conference, Fed Chair Jerome Powell commented that “uncertainty about the economic outlook has increased further,” primarily due to the potential economic repercussions of tariffs proposed by US President Donald Trump, which have introduced skewed “risks to both inflation and unemployment on the upside”. Consequently, Powell advised that the prudent course of action for the Fed is to “await more clarity” before making any further adjustments to monetary policy. The market is closely watching upcoming inflation data and employment figures for further clues.
Analysis of the CME FedWatch tool indicates that market participants are largely anticipating the Fed to maintain current borrowing rates at the upcoming June policy meeting. However, expectations are building for a potential rate cut in July, with the tool indicating approximately a 66% probability of interest rates being lower than current levels at that time.
In other news, investors are keenly awaiting the announcement of what would be the first bilateral trade agreement under the Trump administration. On Wednesday, President Trump announced via a post on Truth.Social that his administration had finalized a trade agreement with a key trading partner, with details to be released on Thursday. A report by The New York Times (NYT) suggests that the trading partner in question is likely to be the United Kingdom (UK). This contradicts earlier indications from Trump on NewsNation last week, where he suggested that India, South Korea, and Japan were the frontrunners for securing initial trade deals.
However, the primary focus for financial market participants remains on the upcoming trade discussions between the United States and China, scheduled to take place on Saturday in Switzerland. US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer have confirmed their participation in the meeting with their Chinese counterparts, with the aim of de-escalating the ongoing trade tensions between the two economic powerhouses. The outcome of these talks could have significant implications for global trade and economic growth.
Daily digest market movers: EUR/USD ticks lower, EU unveils countermeasures for US tariffs
- EUR/USD is experiencing a slight decline as the US Dollar gains ground. While investors have generally supported the USD against the Euro (EUR), the latter has demonstrated relative strength compared to many other currencies.
- Nevertheless, the Euro’s potential for further appreciation is expected to be constrained, as the European Central Bank (ECB) is widely anticipated to continue its monetary easing cycle. Market expectations are increasingly leaning towards another interest rate cut by the ECB at its June meeting. The ECB’s monetary policy decisions are heavily influenced by the economic outlook for the Eurozone and inflation developments.
- ECB officials have expressed concerns regarding the overall Eurozone economic outlook, while maintaining confidence that inflation will sustainably return to the central bank’s target of 2% by the end of the year. Recent economic data releases have painted a mixed picture, with some indicators showing signs of improvement while others remain weak.
- In response to potential trade disputes, the European Union (EU) commission has initiated a public consultation process regarding possible countermeasures in response to United States (US) tariffs. The consultation paper outlines potential countermeasures targeting up to €95 billion of US imports should trade negotiations fail to yield a satisfactory outcome for the bloc. This figure is slightly below the €100 billion previously reported by Bloomberg on Tuesday.
- European Trade Commissioner Maros Sefcovic stated on Wednesday that the commission would announce preparatory steps for countermeasures designed to offset the costs incurred by US tariffs on the continent. “Tomorrow we will announce next preparatory steps, both in the area of possible rebalancing measures, and also in the areas important for the further discussions,” Sefcovic said, according to Reuters. However, he emphasized that the EU’s primary objective remains trade negotiations with the US, but not at any cost, highlighting the importance of securing a fair and equitable agreement.
Technical Analysis: EUR/USD wobbles around 20-day EMA
EUR/USD is trading slightly lower, dipping below the 1.1300 mark on Thursday. The currency pair continues to find support around the 20-day Exponential Moving Average (EMA), currently positioned near 1.1260. This level is acting as a dynamic support, potentially preventing further downside movement in the short term.
The 14-day Relative Strength Index (RSI) has retreated into the 40.00-60.00 range, suggesting that the recent bullish momentum has subsided for the time being. However, the overall bias still appears to be tilted towards the upside, indicating that further gains are possible in the medium term.
Looking ahead, the psychological level of 1.1500 is expected to act as a significant resistance level for the pair. A sustained break above this level could pave the way for further gains. Conversely, the September 25 high of 1.1214 is likely to provide key support for Euro bulls. A break below this level could signal a potential shift in momentum towards the downside.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
