- EUR / USD faces challenges as the US dollar is gaining strength, supported by signs of softening tensions between the United States and China.
- China has announced exemptions for certain American imports from its 125%prices, offering a glimmer of hope to improve trade relations.
- The painful expectations of the ECB apply in the midst of increasing concerns according to which the inflation of the euro zone could be less than the 2% target of the central bank.
EUR / USD continues to weaken for a second consecutive session, exchanging approximately 1,1360 during Asian hours on Monday. The pair is under pressure while the US dollar (USD) strengthens in the midst of signs of softening tensions between the United States and China.
On Friday, China exempted certain American imports from its 125%prices, according to commercial sources. This decision has fueled the hope that the prolonged trade war between the two largest economies in the world could fire.
Adding to the feeling that US Agriculture Secretary Brooke Rollins said on Sunday, as Reuters reported, that Trump administration is organizing daily discussions with China about prices. Rollins stressed that discussions were underway and that the trade agreements with other countries were also “very close”.
Despite these comments, Reuters quoted a spokesperson for the Chinese embassy on Friday, who firmly denied any current negotiation with the United States, declaring: “China and the United States have no consultation or negotiations on prices.” The spokesman urged Washington to “stop creating confusion”. In addition, a Beijing official reiterated Thursday that no “economic and commercial negotiations” was underway and stressed that the United States had to “completely cancel all unilateral tariff measures” to open the way to talks.
Meanwhile, the dominant expectations surrounding the European Central Bank (ECB) rise, fed by increasing concerns that the inflation of the euro zone could be lower than the 2% objective of the ECB. Last Thursday, the decision -maker of the ECB and governor of the Finnish central bank, Olli Rehn, warned against the risks of decline for inflation, noting: “It is quite possible that projections for medium -term inflation in current circumstances are much lower than the target of 2%”.
FAQ Euro
The euro is the currency of the 19 countries of the European Union which belong to the euro zone. It is the second most exchanged currency in the world behind the US dollar. In 2022, he represented 31% of all exchange transactions, with an average daily turnover of more than 2.2 billions of dollars per day. The EUR / USD is the most negotiated currency pair in the world, representing around 30%reduction on all transactions, followed by EUR / JPY (4%), EUR / GBP (3%) and EUR / AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank of the euro zone. The ECB establishes interest rates and manages monetary policy. The main mandate of the ECB is to maintain price stability, which means controlling inflation or stimulating growth. Its main tool is the increase or decrease in interest rates. Relatively high interest rates – or higher rate waiting – will generally benefit the euro and vice versa. The ECB board of directors makes monetary policy decisions during meetings held eight times a year. The decisions are made by the chiefs of national banks in the euro zone and six permanent members, including the president of the ECB, Christine Lagarde.
Inflation data from the euro zone, measured by the harmonized consumer prices index (HICP), is an important econometric for the euro. If inflation increases more than expected, especially if the 2% objective of the ECB forces the ECB to increase interest rates to bring it closer. Relatively high interest rates compared to its counterparts will generally benefit the euro, as it makes the region more attractive as a place for global investors to park their money.
Data versions assess the health of the economy and can have an impact on the euro. Indicators such as GDP, manufacturing and PMI services, employment and surveys on consumer feelings can all influence the management of the single currency. A strong economy is good for the euro. Not only does it attract more foreign investments, but it can encourage the ECB to establish interest rates, which will directly strengthen the euro. Otherwise, if the economic data is low, the euro is likely to drop. Economic data for the four largest economies in the euro zone (Germany, France, Italy and Spain) are particularly important, because they represent 75% of the economy in the euro zone.
Another significant data press release for the euro is the trade balance. This indicator measures the difference between what a country gains from its exports and what it spends in imports over a given period. If a country produces highly sought -after exports, its currency will gain in value only from the additional demand created from foreign buyers seeking to buy these goods. Consequently, a positive net trade balance reinforces a currency and vice versa for a negative balance.
