- The EUR/USD exchange rate may encounter renewed downward pressure as the US Dollar benefits from positive momentum stemming from US-China trade discussions.
- The United States and China have reportedly achieved a preliminary accord to substantially decrease tariffs, indicating a possible reduction in trade friction.
- The European Central Bank (ECB) might extend its current cycle of monetary easing in response to persistent downward trends in inflationary pressures across the Eurozone.
The EUR/USD pair commenced trading on Tuesday with an upward gap during the Asian trading session, hovering around the 1.1110 level, following a decline of over 2.5% in the preceding session. The currency pair encountered headwinds as the US Dollar (USD) gained strength, buoyed by encouraging developments in the trade negotiations between the United States (US) and China. Market participants are closely monitoring these developments, as they could significantly influence the near-term trajectory of the EUR/USD.
Over the weekend, officials from the United States and China reportedly reached a preliminary understanding during discussions held in Switzerland, with the aim of implementing significant reductions in existing tariffs. This agreement suggests a potential de-escalation of the ongoing trade tensions that have weighed on global economic growth. According to the proposed terms, the US would reduce tariffs on Chinese goods from 145% to 30%, while China would reciprocate by lowering tariffs on US imports from 125% to 10%. This development has been met with cautious optimism by financial markets, viewed as a constructive step towards stabilizing global trade relations and fostering a more predictable economic environment. The details of the agreement are still subject to finalization and implementation, and the market’s reaction will likely depend on further confirmation and concrete actions.
Market focus is now shifting towards the forthcoming US Consumer Price Index (CPI) report for April, scheduled for release later on Tuesday. Consensus forecasts among economists anticipate a rebound in headline inflation, projecting a 0.3% month-over-month increase, compared to the previous reading of -0.1%. Similarly, core CPI, which excludes volatile food and energy prices, is also projected to rise to 0.3% from 0.1%. On a year-over-year basis, both headline and core CPI measures are forecast to remain unchanged. These inflation figures will be closely scrutinized by the Federal Reserve as they assess the current state of the US economy and formulate future monetary policy decisions. Any significant deviation from the expected figures could trigger volatility in the currency markets, particularly impacting the US Dollar and, consequently, the EUR/USD exchange rate. Furthermore, investors will be looking for any indications of how the preliminary tariff agreement between the US and China might impact future inflation readings.
