EURUSD Rebounds as USD Weakens Amid Economic and Trade Developments.
The EURUSD currency pair has seen a rebound as the US dollar struggles to maintain its recent gains. Despite positive US economic data and a more measured approach to tariffs by President Donald Trump, the greenback has lost some strength. Meanwhile, the euro remains steady, even with expectations of another interest rate cut from the European Central Bank (ECB) in April.
This article explores the key factors driving the EURUSD movement, including trade policies, economic data, and central bank actions.
EURUSD Recovers After Finding Support at 1.0780
EURUSD found strong buying support around 1.0780 and climbed toward 1.0820 during European trading hours on Tuesday. This movement reflects a mix of factors, including expectations surrounding ECB monetary policy and shifting investor sentiment on US trade policies.
The euro has shown resilience even as traders anticipate further rate cuts by the ECB. The central bank has already reduced borrowing costs six times since June and remains focused on achieving its inflation targets. However, concerns about a potential trade war between the US and the Eurozone have made traders reassess their expectations regarding future rate cuts.
US Dollar Struggles Despite Positive Economic Data.
The US dollar initially gained strength last week due to robust economic data, but it has since retreated. The US Dollar Index (DXY), which measures the dollar’s value against a basket of major currencies, fell to around 104.00 after reaching a two-week high of 104.50.
One of the main reasons for this decline is market optimism that the US will not impose as many tariffs as initially feared. President Trump recently suggested that some countries might be exempt from new trade restrictions, easing concerns about a full-scale trade conflict.
At the same time, US economic indicators have been strong. The S&P Global Services PMI for March jumped to 54.3 from 51.0 in February, far exceeding expectations of 51.2. Given that the services sector accounts for about two-thirds of the US economy, this strong performance supports overall economic growth.
Despite these positive developments, the US dollar has struggled to maintain its momentum. Traders are recalibrating their expectations regarding Federal Reserve (Fed) interest rate cuts, which could further influence USD performance in the coming months.
Trump Softens Stance on Tariffs, Boosting Market Sentiment.
Trade policy remains a crucial factor for both the US dollar and the euro. Initially, fears of aggressive US tariffs on European goods contributed to a stronger dollar. However, recent comments from President Trump have changed the outlook.
On Monday, Trump told reporters at the White House that not all planned tariffs would take effect on April 2. He indicated that some countries might receive exemptions, which markets interpreted as a sign that the trade conflict might be less severe than previously thought.
Even though Trump reaffirmed plans to impose tariffs on automobiles, aluminum, and pharmaceuticals, investors viewed his comments as a relief. A full-scale trade war could have led to higher inflation in both the US and the Eurozone, complicating monetary policy decisions for both the Fed and the ECB.
As a result, risky assets, including the euro, received a boost, while the US dollar lost some of its strength.
ECB Expected to Cut Rates Again in April.
The European Central Bank (ECB) widely expected to cut interest rates again in April as it continues its battle against inflation. Since June, the ECB has already reduced rates six times, and policymakers believe they are making progress toward stabilizing prices.
Last week, ECB President Christine Lagarde spoke before the European Parliament Committee, emphasizing that the impact of trade tensions on inflation would be temporary. She suggested that lower economic activity could eventually ease inflationary pressures, reinforcing the ECB’s current strategy.
However, some traders are now questioning whether the ECB will continue its aggressive rate-cutting path. If US-EU trade tensions persist and inflation remains elevated in Europe, the ECB may need to reconsider the pace of its monetary easing.
At the same time, recent data from Germany—the Eurozone’s largest economy—suggests that the business environment is improving, albeit slowly.
German Business Confidence Improves But Misses Forecasts.
Germany’s IFO Business Climate Index for March showed signs of improvement, although it fell slightly short of expectations. The index rose to 86.7 from the previous reading of 85.3 but missed the forecast of 86.8.
The Expectations Index, which reflects business confidence for the next six months, increased to 87.7 from 85.6 but remained below the predicted 87.9.
The Current Assessment Index, which measures present economic conditions, came in at 85.7, surpassing both the forecast (85.5) and the previous reading (85.0).
While these figures indicate modest progress in Germany’s economic outlook, they also highlight that businesses remain cautious about the future. Trade uncertainty and the ECB’s monetary policy decisions will continue to influence business sentiment in the coming months.
Federal Reserve’s Outlook: Fewer Rate Cuts Than Expected?
The Federal Reserve’s monetary policy stance remains a key driver for the US dollar. While the Fed had initially projected two rate cuts for 2024, some officials are expressing doubts about the need for aggressive easing.
On Monday, Atlanta Fed President Raphael Bostic told Bloomberg that he expects only one rate cut this year. He cited slower progress in bringing inflation down to the Fed’s 2% target and the potential economic impact of tariffs.
The Fed’s Summary of Economic Projections (SEP) from its March meeting still suggests two rate cuts, but Bostic’s comments indicate that internal discussions about policy direction are ongoing.
If the Fed ultimately adopts a less dovish stance, it could support the US dollar in the longer term, limiting EUR/USD upside potential.
Market Outlook for EURUSD
EURUSD near-term trajectory will depend on several key factors:
1. US Trade Policy – If Trump takes a more aggressive approach to tariffs, the dollar could strengthen, while a more lenient stance could weaken it.
2. ECB Monetary Policy – Further rate cuts from the ECB could pressure the euro, but any signs of economic resilience in the Eurozone might counteract this effect.
3. Federal Reserve Decisions – If the Fed signals a more cautious approach to rate cuts, the US dollar may find support. Conversely, confirmation of two or more rate cuts could weaken the greenback.
4. German and Eurozone Economic Data – Positive economic reports from the Eurozone could support the euro, while weaker-than-expected data could weigh on the currency.
At present, EURUSD is finding support around 1.0780 and may continue its rebound if the US dollar remains under pressure. However, traders should watch upcoming data releases and central bank statements for further direction.
Conclusion
The recent rebound in EURUSD reflects a complex interplay of economic data, trade policies, and central bank expectations. While strong US economic performance initially boosted the dollar, a softer approach to tariffs and shifting Fed rate-cut expectations have led to a pullback.
Meanwhile, the euro remains supported despite the likelihood of further ECB rate cuts. Germany’s improving business confidence and concerns about trade-driven inflation suggest that the ECB’s path may not be as straightforward as previously thought.
In the coming weeks, EURUSD traders will closely monitor US inflation data, Fed policy signals, and further trade policy developments. With uncertainty still looming, volatility in the currency markets is likely to persist.
