EUR/USD holds below 1.0950, hopes of German fiscal deal might help limit its losses
- EUR/USD posts modest losses near 1.0915 in Tuesday’s early Asian session.
- German spending plan and softer US Dollar might support the major pair.
- US Retail Sales came in weaker than expected in February.
The EUR/USD pair trades with mild losses around 1.0915 during the early Asian session on Tuesday. Escalating trade war with further tariffs from US President Donald Trump on European Union goods weighs on the Euro (EUR). However, the weaker US Dollar (USD) amid the concerns over the economic slowdown in the United States and the hopes of the German fiscal deal might cap the downside for the major pair.
The US has imposed tariffs on steel and aluminium, the EU has set out plans for retaliation, and Trump has vowed a 200% retaliatory tariff on European wine and spirits. Any signs of an escalating tariff war between the US and EU could exert some selling pressure on the EUR.
On the other hand, the downside for EUR/USD might be limited as the Greens’ signal to the German debt restructuring deal. German Chancellor-in-waiting Friedrich Merz agreed to set up a 500 billion Euro infrastructure fund and dramatic changes in the borrowing rules or stretch in the so-called ‘debt brake’. This should ensure the package's approval in the lower house of Germany's parliament on Tuesday and by the upper house on Friday. This, in turn, might boost the shared currency against the US Dollar (USD) in the near term.
Furthermore, the weaker-than-expected US Retail Sales added to concerns about a slowdown in consumer spending. This report might weigh on the Greenback and act as a tailwind for the major pair. Retail Sales in the United States rose 0.2% MoM in February, compared to a fall of 1.2% (revised from -0.9%) in January, the US Census Bureau reported on Monday. This figure came in weaker than the market expectation for an increase of 0.7%. On a yearly basis, Retail Sales climbed 3.1% versus 3.9% (revised from 4.2%) prior.
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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