The EUR/USD exchange rate held steady around 1.0790 during Thursday’s Asian trading hours, continuing its upward trend for the third consecutive session. However, the Euro faces potential challenges as the European Central Bank (ECB) is widely anticipated to announce a 25 basis point rate cut later today. This move would lower the Main Refinancing Operations Rate to 2.65% and the Deposit Facility Rate to 2.5%.
In Germany, a significant policy shift has emerged following an election victory by the CDU/CSU and SPD. The two parties have reached an agreement to relax the country’s stringent borrowing regulations, allowing for increased defense spending above 1% of GDP. Additionally, a €500 billion off-budget fund will be established to finance infrastructure projects over the next decade.
The EUR/USD pair has been buoyed by improved investor sentiment, driven by expectations of tariff relief for Canada and Mexico. On Wednesday, the White House announced that President Trump would grant a one-month exemption for automakers in these countries from newly imposed 25% tariffs. Bloomberg sources suggest that the administration may also consider removing certain agricultural products from the tariffs.
Despite the pair’s recent strength, geopolitical tensions continue to pose a risk. Late Wednesday, a Chinese foreign ministry spokesperson warned that China is prepared to engage in “any type” of war in response to President Trump’s escalating trade tariffs, as reported by BBC.
Meanwhile, the Federal Reserve’s March Beige Book has garnered heightened attention amid growing concerns about the economic impact of Trump’s trade policies. Signs of economic strain are already emerging in the US, even before the full implementation of these tariffs.
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