The EUR/USD pair remains firm, trading near 1.1285 in Wednesday’s early Asian session. This comes as traders brace for the US Retail Sales report and Federal Reserve (Fed) Chair Jerome Powell’s speech later in the day. The pair has shown resilience amid ongoing trade tensions which have pushed the US dollar to a three-year low against the Euro.
Recent comments by Fed Governor Christopher Waller have added to market speculation about potential rate cuts. Waller noted on Monday that the Trump administration’s tariff policies are significantly affecting the US economy, suggesting that the Fed might cut rates to stave off a recession, even if inflation remains high. In contrast, Atlanta Fed Bank President Raphael Bostic has recommended that the Fed maintain its current stance until more economic clarity is achieved.
According to the CME FedWatch tool, markets are now pricing in nearly 85 basis points (bps) of monetary policy easing by the end of the year, with expectations largely favoring the Fed to hold rates in its upcoming meeting. On the other side of the Atlantic, the European Central Bank (ECB) is also anticipated to cut interest rates by 25 basis points on Thursday in response to growing recession concerns tied to US tariffs. Hadrien Camatte, senior economist at Natixis, suggested that the ECB might cut all three key interest rates during its April meeting.
Previously, the ECB lowered interest rates for the second consecutive time in March, bringing the deposit rate down to 2.5%. The European Central Bank, based in Frankfurt, Germany, is the reserve bank for the Eurozone and plays a crucial role in managing monetary policy and setting interest rates. Its primary mandate is to maintain price stability, which involves controlling inflation and stimulating growth when necessary.
eur/usd traders anticipate central bank moves
Relatively high interest rates or the expectation of such typically benefit the Euro, making it more attractive for global investors. The ECB Governing Council, which includes heads of the Eurozone national banks and six permanent members including ECB President Christine Lagarde, meets eight times a year to make monetary policy decisions.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is pivotal in assessing the Euro’s value. Should inflation rise above the ECB’s 2% target, it could compel the ECB to raise interest rates. High interest rates compared to other regions typically benefit the Euro by attracting more foreign investment.
Economic indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys are also significant. Strong economic data can encourage investment and may prompt the ECB to increase interest rates, strengthening the Euro. Conversely, weak economic data is likely to weaken the currency.
The Trade Balance, which measures the difference between a country’s exports and imports, also impacts the Euro. A positive Trade Balance strengthens a currency as it indicates higher demand for the country’s exports. For the Euro, significant data from the largest Eurozone economies—Germany, France, Italy, and Spain—is particularly influential, as these countries account for 75% of the Eurozone’s economy.
In summary, the EUR/USD is experiencing positive momentum as traders anticipate key economic data and central bank decisions from both sides of the Atlantic. The market remains poised for further developments, with significant attention on the US Retail Sales report and upcoming ECB policy decisions.
