News & Analyses

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US Dollar Remains Weak Ahead of Jackson Hole, USD/JPY and Gold Latest

EUR/USD remains below 1.0400 following Trump comments on tariffs

EUR/USD struggles due to rising dovish sentiment surrounding the ECB’s policy outlook.
The US Dollar appreciates following news that President Trump intends to direct federal agencies to review tariff policies.
Traders expect the Fed to keep its benchmark overnight rate steady in the 4.25%-4.50% range at its January meeting.

EUR/USD remains in the negative territory after trimming its recent losses, trading around 1.0380 during the Asian hours on Tuesday. The Euro (EUR) remains under pressure as dovish expectations for the European Central Bank (ECB) continue to dominate. Markets are anticipating a 25 basis point (bps) rate cut at each of the next four ECB policy meetings, driven by concerns over the Eurozone’s economic outlook and the belief that inflationary pressures will remain subdued.

These dovish bets have intensified due to rising confidence that Eurozone inflation will sustainably return to the ECB’s 2% target, coupled with heightened uncertainty surrounding potential tariff policies from the United States (US).

The US Dollar Index (DXY), which tracks the performance of the US Dollar against six major currencies, rises to around 108.30 at the time of writing. The Greenback regained ground after recent losses in the previous session, supported by news that President Donald Trump intends to direct federal agencies to review tariff policies and evaluate the United States’ trade relationships with Canada, Mexico, and China.

However, the Greenback faced headwinds following a Bloomberg report indicating that President Donald Trump will not immediately announce new tariffs after his inauguration on Monday. The US Federal Reserve (Fed) is expected to keep its benchmark overnight rate steady in the 4.25%-4.50% range at its January meeting. However, investors believe Trump’s policies could drive inflationary pressures, potentially limiting the Fed to just one more rate cut.

Euro FAQs

The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

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.

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

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