EUR/USD has experienced a decline over two consecutive days, retreating to the 1.0900 level as the US Dollar regains strength. This trend follows a period of tariff-induced fluctuations, with a blanket 10% import tax imposed on global goods and reciprocal tariffs introduced.
The economic calendar is set for key US inflation data releases this week, including CPI on Thursday and PPI on Friday. Market expectations suggest around 200 basis points in potential Federal Reserve rate cuts throughout 2025, which are complicated by ongoing trade uncertainties.
Eur Usd Dynamics
EUR/USD briefly rose above 1.1100 but has since fallen under renewed safe haven demand for the Dollar. As trade dynamics shift, further losses may be likely for the Euro.
The Euro serves as the currency for the 19 countries in the Eurozone and is extensively traded globally, accounting for 31% of transactions in 2022. The European Central Bank manages its monetary policy, affecting interest rates and ultimately the Euro’s value.
Inflation measurements from the Eurozone can influence the ECB’s decisions, impacting the Euro through interest rate adjustments. Various economic indicators, including GDP and consumer sentiment, also play a role in shaping the Euro’s trajectory based on economic health.
The Trade Balance is another indicator affecting the Euro’s value, as a positive balance from exports can strengthen the currency against fluctuations in demand.
Market Sentiment and Trade Policies
The ongoing directional shift in EUR/USD can be linked to broad market sentiment, shaped by trade policies, rate expectations, and a subtle but persistent bid for safety. What we’re seeing, in effect, is a recalibration of rate cut bets on the Federal Reserve side, interacting with soft European data and renewed Dollar appetite. With the pair slipping back to the 1.0900 handle after a failed attempt to sustain gains above 1.1100, short-term positioning has come under pressure. That high-water mark now appears more like a stretched resistance level than anything else.
The implementation of broad-based tariffs, especially those wrapped in tit-for-tat measures, has further contributed to dislocation in risk sentiment. Jackson outlined these trade moves as part of a long-term rebalancing, not merely one-off decisions. The implications for foreign exchange are far from temporary. With uncertainties around global supply chains lingering, demand for perceived safe store-of-value currencies—chiefly the Dollar—continues to pick up steam. This supports recent weakness in the single currency, whose softness has pushed through momentum thresholds on shorter timeframes.
What’s important here is not just Thursday’s CPI or Friday’s PPI—though both will feature prominently—but what they represent. If the data leans hotter than expected, the scale of those anticipated 200 basis points in rate cuts for 2025, as forecasted by Bloomberg consensus, may reduce. Osborne noted earlier that markets have been front-loading easing expectations without sufficient confirmation from underlying inflation prints. Essentially, if real-world data fails to follow forward guidance, repricing will be abrupt.
Meanwhile, the European Central Bank remains focused on its own growth-inflation mix. Interest rate pathways here are decidedly more limited. With soft GDP growth and an absence of supply-driven inflationary pressures, options for firm tightening remain constrained. This sets the stage for persistent divergence in policy response, the ramifications of which flow directly into cross-currency spreads. Volatility in those moves deserves close watching heading into next month’s policy meetings.
From a structural lens, we need to revisit the undercurrents supporting the Euro. Fiscal balances may look stable on the surface, but buyers remain sensitive to demand-led shocks. Exports out of the region have failed to pick up in the way lenders anticipated, partly due to weaker external demand from Asia and internal bottlenecks across German manufacturing. All this reaffirms how reliant the Euro still is on external flows, which haven’t turned meaningfully in its favour.
It’s also worth factoring in behavioural creeping into seasonal patterns. Time-of-year positioning, combined with short-term macro hedging ahead of non-farm payrolls and PMI surveys, is driving more tactical trades than usual. This compressed trading window around each data release is leading to wider intraday ranges. A prudent approach would be to map risk tolerance more tightly, adjust for implied volatility bands, and avoid reliance on stale assumptions from Q1 dollar weakness.
Looking ahead, confirmatory action on inflation metrics and guidance from central banks will likely force re-evaluation of multi-month carry trades. That’s particularly true where cost of carry narrows on both ends. We need to be intentional in how we interpret daily moves, especially as longer trendlines intersect with weekly Fed updates and minor revisions in ECB forecasts.
To stay oriented during these swings, it’s not just about the levels—though 1.0850 stands out and 1.1120 is still a wall—it involves measuring flows into real money demand, assessing swap spreads, and keeping an eye on implied vols as sentiment proxies. Regulatory pressure and tariff frameworks certainly complicate that backdrop, and the old habit of relying solely on differentials should now be supplemented with directional risk views informed by exposure to traded goods flows.
As always in these moments, the tools we use—not just the data itself—matter. We’ve found it useful to increase reactivity during key sessions, with particular attention to US-Europe overlap hours, given their heightened impact on spot and forwards.
