EURUSD currency pair has edged slightly higher.
EURUSD currency pair has edged slightly higher as the US Dollar (USD) weakens in Thursday’s European session. This movement is driven by multiple factors, including investors growing less fearful about US President Donald Trump’s tariff threats, the Federal Open Market Committee (FOMC) Minutes highlighting inflation risks, and expectations that the European Central Bank (ECB) may pause its policy-easing cycle. As a result, EUR/USD is trading near 1.0440, while the US Dollar Index (DXY) has declined to around 106.90.
Trump’s Tariff Agenda and Market Reactions.
President Donald Trump’s tariff policies have been a key factor influencing the USD. Since returning to office, he has imposed a 25% tariff on steel and aluminum, a 10% tariff on all Chinese imports, and has threatened further reciprocal tariffs, including a 25% levy on automobiles, semiconductors, and pharmaceuticals by April. Initially, markets anticipated that Trump would aggressively implement these tariffs immediately, but his recent remarks indicate a more measured approach. He has stated that he refrained from imposing tariffs instantly to allow domestic manufacturers time to increase their production capacity.
This more gradual approach has reassured investors, leading to a reduction in the risk premium attached to the US Dollar. Market analysts believe that US trading partners may be able to negotiate with Trump before the full impact of tariffs takes effect. If successful, this could limit the overall economic disruption and keep inflationary pressures in check.
Optimism Over Russia-Ukraine Truce
Beyond US economic policy, another key factor affecting currency markets is the potential for a Russia-Ukraine truce. President Trump has expressed willingness to engage in further diplomatic talks involving Russia, Ukraine, and European leaders to bring an end to the ongoing conflict. This has fueled optimism in financial markets, reducing global uncertainty and further diminishing the risk premium associated with the US Dollar.
A peace agreement would have significant economic benefits, particularly for the Eurozone. The region has historically relied on Russian energy imports, and an end to the war would likely improve the global supply chain and reduce energy prices. Lower energy costs could help curb inflationary pressures in the Eurozone, allowing for more stable economic growth.
Impact of FOMC Minutes on the US Dollar
Despite the weaker USD, the latest FOMC Minutes released on Wednesday suggest that the Federal Reserve remains concerned about inflationary risks. Policymakers acknowledged that import tariffs would likely increase costs for producers, who in turn would pass these costs on to consumers. This scenario would push inflation higher and justify a prolonged restrictive monetary policy stance.
In theory, hawkish FOMC Minutes should support the US Dollar, as higher interest rates typically make the currency more attractive to investors. However, market sentiment appears to be more influenced by Trump’s economic policies than by the Fed’s guidance. Traders are balancing the Fed’s inflation concerns with expectations of Trump’s tariff decisions and their potential economic impact.
ECB Policy Outlook and Interest Rate Expectations
On the Eurozone front, traders have fully priced in three more interest rate cuts by the European Central Bank (ECB) by this summer. However, ECB Executive Board Member Isabel Schnabel has suggested that the central bank could pause its monetary expansion cycle. She noted that inflation risks have “skewed to the upside” and that borrowing costs have already eased significantly.
Schnabel’s comments highlight ongoing inflation concerns in the Eurozone. She pointed out that domestic inflation remains high and that wage growth is still elevated, particularly as new energy price shocks emerge. If the ECB decides to halt rate cuts, this could provide further support to the Euro against the US Dollar.
Market Outlook: EURUSD and Upcoming Data Releases
- Several key events and data releases will influence the EURUSD pair in the coming days:
- Flash PMI Data for February (to be released on Friday): The Purchasing Managers Index (PMI) is a crucial indicator of economic health. If Eurozone PMI data shows strength, it could reinforce expectations that the ECB will pause rate cuts, supporting the Euro.
- US Initial Jobless Claims (to be released on Thursday): The latest jobless claims data will provide insight into the health of the US labor market. A stronger labor market could bolster expectations for a prolonged restrictive Fed policy, potentially providing some support for the USD.
- Geopolitical Developments: Any updates on Russia-Ukraine peace talks or further details on Trump’s trade policies could shift market sentiment and influence the EURUSD pair.
EURUSD Technical Outlook
From a technical perspective, EURUSD appears to be in a recovery phase after facing downward pressure in recent weeks. The pair is currently hovering around the 1.0440 level, with key resistance and support levels to watch:
Immediate Resistance: 1.0480 (recent high)
Stronger Resistance: 1.0525 (50-day moving average)
Immediate Support: 1.0380 (recent low)
Key Support: 1.0320 (psychological level)
If bullish momentum continues, a break above 1.0480 could open the door for further gains toward 1.0525. However, if USD strength returns, a pullback toward 1.0380 or lower remains possible.
Conclusion
The EURUSD pair has seen modest gains due to a weakening US Dollar, driven by reduced concerns over Trump’s tariff policies and optimism surrounding a Russia-Ukraine truce. While the FOMC Minutes highlight persistent inflation risks that could justify a stronger USD, market sentiment is currently more influenced by geopolitical and trade-related factors.
The Euro also finds some support from the ECB’s potential pause in rate cuts, as policymakers remain cautious about inflation and wage growth. Traders will be closely watching upcoming economic data releases, including US jobless claims and Eurozone PMI data, for further clues on the currency pair’s direction.
Overall, while the EURUSD remains in a volatile trading range, a combination of economic policy decisions, geopolitical developments, and market sentiment will determine its next major move.
