EUR/USD drops below 1.1250 as US Dollar appreciates ahead of Q1 GDP Annualized
- EUR/USD remains subdued as the US Dollar advances after a federal court halted Trump’s "Liberation Day" tariffs from taking effect.
- US Gross Domestic Product Annualized is expected to fall again by 0.3% in the first quarter.
- ECB’s Klaas Knot noted that the current inflation outlook in Europe challenges the central bank to engage in direct moves.
EUR/USD extends its losing streak for the third successive session, trading around 1.1240 during the Asian hours on Thursday. The preliminary US Q1 Gross Domestic Product (GDP) Annualized, Personal Consumption Expenditures Prices QoQ, and Initial Jobless Claims, scheduled to be released later in the day.
The EUR/USD pair depreciates as the US Dollar (USD) gains ground following a decision by a US federal court on Wednesday to block US President Donald Trump from imposing "Liberation Day" tariffs from taking effect. A three-judge panel at the Court of International Trade in Manhattan ruled that Trump lacked the authority and declared the move unconstitutional and beyond presidential authority.
On Wednesday, the Federal Open Market Committee's (FOMC) Minutes for the latest policy indicated that Federal Reserve (Fed) officials broadly agreed that heightened economic uncertainty justified their patient approach to interest-rate adjustments. Fed officials emphasized the need to keep interest rates unchanged for some time, as recent policy shifts cloud the US economic outlook.
However, the downside of the risk-sensitive Euro (EUR) could be restrained due to easing trade tension between the United States and the European Union (EU). Last week, President Trump extended the tariff deadline on imports from the EU from June 1 to July 9.
The Brussels agreed on Monday to accelerate trade talks with the United States to avoid a transatlantic trade war. On Tuesday, Trump expressed his satisfaction in a post on Truth Social, noting that the EU is speeding up the process toward reaching a trade deal with the US. “I have just been informed that the EU has called to quickly establish meeting dates. This is a positive event, and I hope that they will”, Trump wrote.
On Wednesday, European Central Bank (ECB) Governing Council member and head of the Dutch central bank De Nederlandsche Bank (DNB), Klaas Knot, said that the current European inflation outlook is gloomy, challenging the central bank to engage in direct moves. Knot added that the medium-term inflation outlook is more ambiguous, which may cause considerable issues.
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.