EUR/USD rallies back above 1.1000 as markets digest Trump’s surprise move on tariffs
- EUR/USD snaps back above 1.1000 after a volatile US close on Wednesday.
- Markets brace for March US CPI data release and more headlines on tariffs.
- The EUR/USD rally is still intact and re-enters the 1.1000-1.1500 region.
The EUR/USD pair edges higher and recovers to 1.1050 at the time of writing on Thursday. A whipsaw session on Wednesday saw EUR/USD ranging from 1.1095 all the way down to 1.0913 as United States (US) President Donald Trump eased off his tariffs stance and lowered the reciprocal tariff rate for all countries to 10% during a 90-day pause.
The move came after several people, such as Elon Musk, Bill Ackman and some leading republican party figures – US Stock markets were also giving signs of warning – advised the US president that the reciprocal levies approach was hitting nerves. The 90-day pause was applauded by markets as US Equities went through the roof. The focus this Thursday will shift to the US Consumer Price Index (CPI) for March.
Daily digest market movers: All eyes on US CPI
- At 12:30 GMT, quite a lot of data will be released:
- March US CPI data:
- Headline monthly inflation is expected to come in at 0.1%, compared to 0.2% in February. The yearly headline inflation should fall to 2.6% in March, coming from 2.8%.
- Core monthly inflation is expected to tick up to 0.3%, coming from 0.2%. The yearly core inflation should ease to 3.0% in March from 3.1% the previous month.
- Weekly US Jobless Claims will be released as well, with the initial claims seen at 223,000, coming from 219,000. The Continuing Claims should fall to 1.88 million from 1.903 million last week.
- At 13:30 GMT, Federal Reserve (Fed) Bank of Dallas President Lorie Logan is due to speak.
- At 14:00 GMT, Fed Governor Michelle Bowman gives a testimony at the Nomination Hearing Before the U.S. Senate Committee on Banking, Housing and Urban Affairs.
- At 16:00 GMT, Federal Reserve Bank of Chicago President and CEO Austan Goolsbee speaks at the Economic Club of New York.
- At 16:30 GMT, Philadelphia Fed bank President Patrick Harker will comment on Fintech in the '2025 Fintech and Financial Institutions Research Conference' at the Federal Reserve Bank of Philadelphia, Ten Independence Mall, Philadelphia.
- Equities are rallying, with European ones firmly in the green, up over 5%. US futures are sinking lower, though, as the rejoicement from Wednesday after Trump’s tariffs announcement seems to be short-lived for now.
- The CME FedWatch tool shows that the chances of an interest rate cut by the Federal Reserve (Fed) in May have decreased to only 19,5% compared with 44.6% seen on Tuesday. For June, the chances of lower borrowing costs are 75.3%.
- The US 10-year yield trades around 4.29% and is looking for direction after the bounce throughout this week.
Technical Analysis: Volatile path
The EUR/USD pair is clearly facing volatility since Trump went ahead with his reciprocal tariffs announcement and implementation. The 90-day pause announced on Wednesday was briefly seen as a reason to strengthen the Greenback, but now market sentiment turns around the fact that 90 days might not be that much time to negotiate with all the countries hit by reciprocal tariffs on all kinds of products and goods.
The 1.1000 important psychological level is being reclaimed, with the EUR/USD nearing the 1.1050 area at the time of writing. The next target is the 1.1200 level, which limited the EUR/USD advance in August and September 2024, with interim resistance at the current year-to-date high of 1.1146.
On the downside, the ascending trend line, coming in around 1.0910, should do the trick to support the rally. In case this line is broken, the 200-day Simple Moving Average (SMA) at 1.0735 could limit the downside. Below there, the 1.0667 pivotal level and the 55-day SMA at 1.0645 should be able to support the major currency pair.
EUR/USD: Weekly Chart
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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