The EUR/USD pair has dropped to near 1.0780 during the Asian trading hours on Friday, pressured by renewed demand for the US Dollar (USD). A combination of factors, including the renewed strength of the Greenback and market concerns over Donald Trump’s proposals to raise tariffs, is contributing to the Euro’s decline.
Trump’s Tariff Proposal Exerts Downward Pressure on the Euro
Trump’s recent pledge to impose a 10% tariff on imports from all countries has particularly weighed on the Euro, as the European Union has the second-largest trade deficit with the US. The EU is also the largest exporter to the US, according to JPMorgan. Market participants are concerned that such a tariff increase could negatively impact the Eurozone’s export-heavy economy, leading to a broader reduction in demand for the Euro.
US Federal Reserve’s Interest Rate Cuts and ECB Outlook
As anticipated, the US Federal Reserve lowered its benchmark interest rate by 25 basis points (bps) at its November meeting on Thursday. The Fed‘s decision reflects its cautious stance on maintaining labor market strength while striving to bring inflation back toward its 2% target. While the rate cut was widely expected, there are increasing speculations that the Fed will continue to ease rates further, though the pace and timing of future cuts remain uncertain. Traders are awaiting further guidance from key economic data, including the US Michigan Consumer Sentiment Index, as well as remarks from Federal Reserve Governor Michelle Bowman later on Friday.
On the European side, the European Central Bank (ECB) has been cutting rates at a faster pace than the Fed. The ECB has already reduced interest rates three times this year as inflation pressures in the Eurozone have eased more quickly than expected. Market expectations for another ECB rate cut are high, which continues to undermine the Euro’s relative appeal against the US Dollar in the near term.
Looking Ahead: Market Focus on US Economic Data
Traders are awaiting the release of the US Michigan Consumer Sentiment data for November, which could offer fresh direction for the EUR/USD pair. Positive sentiment readings might boost the US Dollar further, exacerbating the Euro’s decline. Additionally, Fed Governor Michelle Bowman’s speech will be closely monitored for clues about the future path of interest rates, especially as the central bank navigates the delicate balance between supporting economic growth and controlling inflation.
Technical Outlook: EUR/USD Under Pressure
From a technical perspective, the EUR/USD pair is facing significant downward pressure, with the 1.0780 level now in focus. A break below this level could pave the way for further declines toward the next support levels. On the upside, resistance is likely to come into play around 1.0820 and 1.0850.
In summary, the EUR/USD pair is struggling against the stronger US Dollar, with concerns over US tariff proposals and the diverging monetary policy paths of the Fed and ECB adding to the bearish outlook for the Euro. Investors will look for further US economic data and Fed commentary for clues about the future direction of the currency pair.
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