EUR/USD shows resilience ahead of German debt vote, US-Russia peace talks
- EUR/USD holds above 1.0900 ahead of the vote on German debt restructuring and peace talks between Russia and the US.
- A significant relaxation in German borrowing rules could boost economic growth and employment.
- The Fed is certain to keep interest rates steady on Wednesday amid uncertainty over President Trump’s economic policies.
EUR/USD trades firmly near the five-month high of 1.0950 in Tuesday’s European session ahead of voting on the German debt restructuring deal in the Bundestag lower house of Parliament. German leaders will vote on passing an infrastructure fund worth 500 billion Euro (EUR) and ease borrowing limit to boost defense spending.
The German debt deal is highly likely to get majority votes as Franziska Brantner-led-Greens agreed last week to support likely chancellor Frederich Merz-led-Christian Democratic Union (CDU) and the Social Democratic Party (SDP) for bringing an end to German’s fiscal conservatism, which it adopted after the 2008 sub-prime crisis.
Market participants expect the massive surge in German borrowing limit will accelerate economic growth and inflation. Such a scenario is favorable for the Euro, given that Germany is the Eurozone’s locomotive. The positive impact of the German debt increase plan is already visible in the Euro, which has performed strongly in the last weeks.
Firm optimism over the German debt deal has also lifted expectations that the European Central Bank (ECB) could pause the monetary easing cycle after reducing interest rates six times since June 2024. ECB policymaker and Austrian Central Bank Governor Robert Holzmann said on Friday that the central bank could keep interest rates steady in the April policy meeting as United States (US) President Donald Trump’s tariff agenda and defense spending have prompted risks of a resurgence in inflationary pressures.
In Tuesday’s session, investors will also focus on the US-Russia talks for a ceasefire in Ukraine. Last week, Ukraine agreed to a 30-day ceasefire plan after discussions with US officials in Saudi Arabia. On Monday, the European Union (EU) Foreign policy chief Kaja Kallas said the conditions demanded by Russia to agree to a ceasefire showed Moscow does not really want peace, Reuters report.
Daily digest market movers: EUR/USD strives for more gains amid weakness in US Dollar
- EUR/USD sees more upside as the US Dollar (USD) struggles for a firm footing ahead of the Federal Reserve’s (Fed) interest rate decision, which will be announced on Wednesday. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades close to a five-month low of 103.20.
- According to the CME FedWatch tool, the Fed is almost certain to keep borrowing rates steady in the range of 4.25%-4.50% on Wednesday. This would be the second straight policy meeting in which the Fed will leave interest rates unchanged.
- Traders have remained increasingly confident about the Fed maintaining a status quo on Wednesday as officials have been arguing in favor of a “wait and see” approach amid uncertainty over the economic outlook under the leadership of US President Trump. He has been threatening to introduce reciprocal tariffs, a situation in which the US will impose similar levies charged by other nations on the same products.
- Market participants expect Trump tariffs could be inflationary and lead to economic turbulence in the economy. A slew of US officials, including the President, have not ruled out that Trump’s economic policies could lead the economy to a recession.
- Increased geopolitical uncertainty from Trump’s tariff agenda has forced global organizations to slice US Gross Domestic Product (GDP) growth forecasts. On Monday, the Organization for Economic Cooperation and Development (OECD) stated that the US economic growth could decelerate to 2.2% in 2025 and 1.6% in 2026 after expanding at a robust pace of 2.8% in 2024. The agency also warned that higher and broader increases in trade barriers would hit growth and boost inflation growth globally.
Technical Analysis: EUR/USD trades firmly above 1.0900
EUR/USD shows strength near the five-month of 1.0950 on Tuesday. The long-term outlook of the major currency pair remains firm as it holds above the 200-day Exponential Moving Average (EMA), which trades around 1.0655.
The pair strengthened after a decisive breakout above the December 6 high of 1.0630 on March 5.
The 14-day Relative Strength Index (RSI) wobbles near 70.00, suggesting that a strong bullish momentum is intact.
Looking down, the December 6 high of 1.0630 will act as the major support zone for the pair. Conversely, the psychological level of 1.1000 will be the key barrier for the Euro bulls.
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.
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