- EUR/USD is trading slightly higher, hovering near the 1.1100 level, while a temporary trade de-escalation between the US and China, coupled with the absence of progress in EU-US trade negotiations, continues to exert downward pressure on the pair.
- Federal Reserve Bank of Chicago President Austan Goolsbee reiterates concerns about a potential US economic slowdown and persistent inflationary pressures.
- The upcoming US Consumer Price Index (CPI) data is widely anticipated to show a steady year-over-year increase.
The EUR/USD pair is exhibiting cautious trading behavior, fluctuating near a one-month low around the 1.1100 mark during the European trading session on Tuesday. The pair is struggling to establish a firm upward trajectory as the perceived strength of the US Dollar (USD) has been bolstered by the recent agreement between the United States (US) and China to de-escalate trade tensions and substantially reduce tariffs, an accord reached on Monday. This development has seemingly shifted investor sentiment, favoring the Greenback.
As of the time of this report, the US Dollar Index (DXY), which serves as a benchmark for the Dollar’s value against a basket of six major currencies, is maintaining its gains from the previous day, trading around the 101.60 level. This indicates continued demand for the US currency in the foreign exchange market.
On Monday, both Washington and Beijing implemented tariff reductions of 15% for a 90-day period following a two-day meeting held in Geneva over the weekend. This agreement effectively lowers the additional levy to 10% for the US and 30% for China. However, the 20% tariff on fentanyl originating from China remains in effect, although Washington has indicated that “constructive discussions” are underway to address this particular issue. The market is closely watching for further developments on this front.
The announcement of this temporary trade truce triggered a notable upswing in the US Dollar and a corresponding rally in US equity indices. This market reaction suggests that investors are regaining confidence in the overall outlook for the US economy. Previously, the imposition of significantly higher reciprocal tariffs by the US on China had contributed to a substantial weakening of the US Dollar and a decrease in demand for US assets. In the preceding months, market analysts and Federal Reserve (Fed) officials had expressed concerns and painted a rather pessimistic picture of the US economy, largely attributed to the adverse effects of the protracted US-China trade war. The recent de-escalation offers a potential respite from these concerns, although the long-term implications remain to be seen. Investors are now keenly awaiting the release of key economic data, including the upcoming CPI figures, to further gauge the health and trajectory of the US economy.
