- The EUR/USD will soften on Tuesday's early Asian session to about 1.1415.
- Bessent said China's task is to escalate the trade war.
- Entrepreneurs raise their contributions in reducing the ECB rate.
EUR/USD pair edges are lower on Tuesday during early Asian session until 1.1415. The euro (EUR) is weakened with respect to the US dollar (USD), in the middle of the bets in June to increase further interest rates in the European Central Bank (ECB). Investors support the release of US farms' payrolls (NFP) data on Friday before highly welcomed US trade policy developments.
US President Donald Trump said he had been progressing and has spoken to Chinese President Xi Jinping, although Beijing has denied trade negotiations. US Treasury Secretary Scott Bessent said he had communication with the Chinese authorities last week but did not mention tariffs.
Bessent said on Monday that the US government is in contact with China, but it would be to be Beijing to take the first step in escalating the tariff fight with the United States due to imbalance between the two countries. Investors closely monitor US-China relationships. Trump's chaotic trade policy has reduced faith in American assets and the shared currency has become an alternative destination for investors. All signs of escalation in the US-China Trade War can consider a green setback and act as a pair of EUR/USD.
In the pond, Reuters announced on Saturday that ECB policy makers would become more confident in reducing interest rates in June as inflation continues. Olli Rehn, ECB policy maker, said Monday that the central bank could reduce interest rates below the neutral level that keeps the economy in balance.
Euro
The euro is a currency of 19 European Union countries belonging to the eurozone. This is the second most hardly traded currency behind the US dollar. In 2022 it accounted for 31% of all currency exchange transactions, with an average daily turnover of over $ 2.2 trillion a day. EUR/USD is the most strongly traded currency pair in the world, accounting for an estimated 30%off all transactions followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is a Eurozone reserve bank. The ECB sets interest rates and manages monetary policy. The main authority of the ECB is to maintain price stability, which means either controlling inflation or stimulating growth. Its main tool is to raise or lower interest rates. Relatively high interest rates – or higher interest rate expectations – usually benefits the euro and vice versa. The ECB Council makes monetary policy decisions at meetings eight times a year. Decisions are made by Christine Lagarde, President of the EURSUONE and six permanent members, including ECB President.
Eurozone inflation data measured by a harmonized index of consumer prices (HICP) is an important econometric for the euro. If inflation increases more than expected, especially if the ECB's 2% goal, it obliges the ECB to increase interest rates to control it. Relatively high interest rates compared to its colleagues usually benefit the euro as it makes the area more attractive to global investors to park their money.
The data releases the health of the economy and can affect the euro. Such indicators such as GDP, production and service PMI, employment and consumer emotion studies can all affect the direction of the currency. A strong economy is good for the euro. Not only does it attract more foreign investment, it can encourage the ECB to set interest rates that directly strengthen the euro. Otherwise, if the economic data is weak, the euro is likely to fall. The economic data of the four largest economy in the euro area (Germany, France, Italy and Spain) are particularly important as they account for 75% of the eurozone economy.
Another important publication of the euro is the trade balance. This indicator measures the difference between what the state earns from its exports and what it spends on imports over a period of time. If the state produces exports of highly coveted exports, its currency will be obtained from purely additional demand from foreign buyers who want to buy those goods. Therefore, the positive balance of net trade strengthens the currency and, on the contrary, to obtain a negative balance.
