EUR/USD dropped below 1.1000 during North American trading after reaching a six-month high of 1.1145. The fall followed strong US Nonfarm Payrolls data, with 228,000 jobs added in March, exceeding the 135,000 estimate.
The unemployment rate rose to 4.2%, while average hourly earnings increased by 3.8% year-on-year, slightly below expectations. Increased employment suggests the Federal Reserve may sustain a restrictive policy, although inflation concerns remain a primary focus.
Probability Shifts On Interest Rates
The CME FedWatch tool shows a decline in the probability of keeping interest rates steady, down to 65.8%. Fed Chair Jerome Powell’s upcoming speech is anticipated for insights on monetary policy impacted by tariffs.
The Euro is under pressure from fears that tariffs imposed by President Trump will damage US and Eurozone economic growth. Trump announced a 10% baseline tariff effective soon, leading to pessimism around global economic prospects.
European Commission President Ursula von der Leyen warned of dire consequences and potential retaliatory measures if negotiations with the US fail. Expectations of ECB rate cuts in April added further pressure on the Euro.
EUR/USD retreated to near 1.0970, maintaining a bullish outlook above the 20-day Exponential Moving Average. Important support levels rest at 1.0955 and 1.0850, while resistance is noted at the September 25 high of 1.1214.
Tariffs are used to protect local industries and create competitive pricing. They generate debate among economists, with some viewing them as necessary and others seeing potential long-term economic harm.
Trump’s Tariff Strategy
Trump aims to leverage tariffs to bolster the US economy, focusing on Mexico, China, and Canada, which comprised 42% of US imports in 2024. He plans to use tariff revenue for personal income tax reductions.
While headlines focused on nonfarm payrolls, what stood out most to us was the market reaction across interest rate expectations. The US March employment report beat forecasts sharply—228,000 jobs added compared to the projected 135,000—sending the EUR/USD pair tumbling below the 1.1000 level after touching highs not seen since last September.
Despite the rise in unemployment to 4.2%, the jobs figure alone hints at continued economic resilience in the United States. Markets now see less reason for the Federal Reserve to shift from its restrictive stance anytime soon. It’s important to note that average hourly earnings climbed 3.8% on the year, softer than expected, which offers mixed signals. Yet for traders focused on rate differentials, the jobs strength likely carries more narrative weight at this juncture.
Fed Chair Powell is scheduled to speak shortly. His comments will probably delve into the effects of the fresh tariffs, especially in light of recent shifts in bond yields. Markets have already adjusted sharply; data from CME’s FedWatch indicates a sizable drop in the probability of holding rates steady. In our view, if Powell leans hawkish or nods towards inflation persistence, that would further dampen bids for EUR/USD.
Concerns surrounding trade continue to ripple through foreign exchange pricing. The recent US announcement of a broad-based 10% tariff pushes both growth and inflation expectations into uncomfortable territory. President Trump’s ongoing strategy relies heavily on the assumption that targeted tariffs, especially involving Mexico, China, and Canada, invite domestic industrial revival and generate revenues he can direct into other domestic policy initiatives.
Von der Leyen had strong words in Brussels, warning that failure to reach negotiated terms could result in firm retaliation from the EU. This escalates pressure on the Euro, particularly as the European Central Bank experiences an uptick in expectations for a rate cut this April. This policy divergence widens the gap in returns available in dollars versus euros, reinforcing a weaker stance on the Euro side barring a surprise from Frankfurt.
From a price action perspective, despite Friday’s pullback, EUR/USD remains structurally supported above its 20-day exponential moving average. However, any breach below the current support levels—particularly 1.0955 and more so the lower base near 1.0850—could prompt technical traders to reassess long positions. For the time being, the peak at 1.1214 established in late September offers the next upside target should economic momentum dampen in the US or if a diplomatic breakthrough provides the Euro with relief.
We’ve also noted the growing division among economists regarding the utility of tariffs. While proponents see protective value, others caution that prolonged use introduces distortions that can outweigh short-term gains. This type of environment, where tariffs and monetary policy shifts intermingle, often creates wider ranges and more sudden price breaks—something we will need to monitor closely in futures positioning and options volatility.
Expect sentiment to remain tied to flows related to rate expectations and trade policy headlines. Extreme market sensitivity means even modest shifts in tone from policymakers, or unexpected inflation prints, could unlock new price pockets—not just in EUR/USD, but across major pairs.
