EUR/USD drifts lower to near 1.0450 on Trump’s tariff threats
The EUR/USD pair loses ground to around 1.0465 during the Asian trading hours on Thursday. The Euro (EUR) weakens after US President Donald Trump threatened to slap 25% tariffs on the European Union. Investors await the release of the estimate of US Gross Domestic Product (GDP) for the fourth quarter (Q4) and the weekly Initial Jobless Claims for fresh impetus, which are due later on Thursday.
Late Wednesday, US President Donald Trump reiterated his insistence on 25% tariffs on Canada and Mexico, as well as adding the European Union (EU) to the list of countries from which he will penalize US consumers for importing. The EU vowed to respond “firmly and immediately” to “unjustified” trade barriers, indicating that it stands ready to retaliate swiftly against new levies. Trump’s tariff threats could worsen the Eurozone’s economic slowdown and might drag the shared currency lower against the US Dollar (USD).
Across the pond, the concern about US economic growth has bolstered expectations the US Federal Reserve (Fed) will deliver at least two rate cuts this year, undermining the Greenback. The markets are now pricing about 58 basis points (bps) of easing for 2025, although rates are expected to remain on hold for the next several months, according to the CME FedWatch tool.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Source: Fxstreet
