On Thursday, the EUR/USD currency pair experienced a significant decline, dropping well below the 1.0850 mark. This slump came as investors grew increasingly cautious about the future of the trade relationship between the European Union (EU) and the United States.
The tensions between the two economic powerhouses were exacerbated when US President Donald Trump threatened to respond to the EU’s proposed counter – tariffs. Trump’s remarks followed the EU’s announcement of ‘swift and proportionate countermeasures’ on US imports in the EU in response to the steel tariffs imposed by the US. On Wednesday, Trump announced a 25% tariff on steel and aluminum imports, which took effect on Thursday. The EU’s counter – tariffs were targeted at $26 billion worth of US goods. Just before his meeting with Irish Prime Minister Micheál Martin, Trump commented on the trade deficit with Ireland and other countries, hinting at reciprocal tariffs.
Amid these escalating trade tensions, the economic impact on Germany, the largest exporter in the Eurozone to the US, is a major concern. On Thursday, during European trading hours, ECB policymaker and Bundesbank President Joachim Nagel warned in an interview with BBC News that US trade tariffs on the EU could push Germany into a recession this year.
Adding to the market’s unease, traders are awaiting the meeting of German leaders to discuss a debt restructuring plan aimed at boosting defense spending and stimulating economic growth. The German Green Party, led by Franziska Brantner, has agreed to negotiate with likely next Chancellor Friedrich Merz and the Social Democratic Party’s (SDP) co – leader Lars Klingbei. The Euro had been performing well recently on expectations that the German debt restructuring plan would be inflationary, which could lead to a reduction in dovish bets on the European Central Bank (ECB).
The US Dollar, on the other hand, saw a recovery. The US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, rebounded from its four – month low of 103.20 to nearly 104.00. This recovery occurred despite US consumer and producer inflation cooling down faster than expected in February. The headline Producer Price Index (PPI) rose by 3.2% in the 12 months to February, slower than the estimated 3.3% and the 3.7% increase in January. The core PPI, which excludes volatile food and energy prices, decelerated more rapidly to 3.4% from expected 3.5% and the previous 3.8%. Month – on – month, the core PPI deflated by 0.1% while the headline figure remained unchanged.
The signs of taming inflationary pressures have led traders to increase bets that the Federal Reserve (Fed) will ease monetary policy. According to the CME FedWatch tool, there is a 76% probability that the Fed will cut interest rates in the June meeting. The next major event for the US Dollar will be the two – day Fed’s monetary policy meeting on March 18 – 19. While the central bank is likely to keep interest rates steady in the 4.25% – 4.50% range, investors will closely watch the Fed’s guidance on inflation and the economic outlook under Trump’s leadership.
From a technical perspective, the EUR/USD pair dropped steeply to around 1.0820 on Thursday, extending its correction after reaching a fresh five – month high near 1.0950 on Tuesday. However, the long – term outlook for the pair remains bullish as it holds above the 200 – day Exponential Moving Average (EMA), which is around 1.0650. The 14 – day Relative Strength Index (RSI) is above 60.00, indicating that the bullish momentum is still intact. Looking ahead, the December 6 high of 1.0630 will serve as a major support level for the pair, while the psychological level of 1.1000 will be a significant hurdle for Euro bulls.
In the broader currency market, the table below shows the percentage change of the US Dollar (USD) against major currencies. The US Dollar was particularly strong against the Australian Dollar.
The heat map, with the base currency selected from the left column and the quote currency from the top row, shows the percentage changes of major currencies against each other. For example, selecting the US Dollar from the left column and moving horizontally to the Japanese Yen shows the percentage change of USD (base)/JPY (quote).
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