EUR/USD Rises Near 1.1350 on EU Tariff Suspension
EUR/USD Strengthens Amidst EU-US Trade De-escalation
The EUR/USD currency pair climbed to near 1.1350 during the Asian session on Friday, fueled by a significant geopolitical development. The European Union (EU) announced a 90-day suspension of newly proposed 25% tariffs on United States (US) imports. This surprising move aims to ease trade tensions and open the door for diplomatic negotiations.
EU Trade Policy Shift Boosts the Euro
The rally in EUR/USD was primarily driven by the de-escalation of EU-US trade friction. Earlier this week, the EU hinted at strong retaliation following Washington's brief imposition of a 20% reciprocal tariff. However, a White House policy reversal resulted in a more moderate 10% duty on EU exports to the US, effective until July. While the previously announced 25% tariffs on US steel, aluminum, and automobiles remain, the new wave of tariffs has been temporarily shelved.
This conciliatory tone from both sides boosted market optimism, strengthening the Euro and weakening the US Dollar (USD). The EU's pause on punitive measures signals a willingness to negotiate and potentially avoid a full-scale trade conflict. EUR/USD saw gains for a second consecutive day.
ECB Rate Path Repricing
Another factor contributing to the Euro's strength is the recalibration of European Central Bank (ECB) rate expectations. Traders are less certain about aggressive rate cuts given improving sentiment and resilient economic data. As of Friday, markets are pricing in a deposit facility rate of 1.8% by December, a change from 1.65% on Wednesday and 1.9% the previous week. This suggests fewer, or more delayed, rate cuts. The probability of an April rate cut has dropped to 90% from 100% earlier in the week.
This shift reflects not only geopolitical developments but also confidence in the Eurozone's economic resilience, particularly when compared to softening US inflation data.
Weaker US CPI Weighs on the Dollar
The US Dollar is under pressure due to cooling inflation and investor uncertainty about the Federal Reserve's (Fed) next move. Thursday's US Consumer Price Index (CPI) showed a significant deceleration in inflation. The headline CPI for March was 2.4% year-over-year, down from 2.8% in February and below the expected 2.6%. The month-over-month index declined by 0.1%.
The core CPI, excluding volatile food and energy, rose 2.8% YoY, also below the forecast of 3.0% and the previous reading of 3.1%. Month-over-month, core CPI increased by only 0.1%.
This suggests inflation is moderating faster than expected, potentially reducing the Fed's need for a restrictive monetary policy. The US Dollar Index (DXY) has fallen to around 100.20, supporting the EUR/USD's upward trend.
Upcoming US Data: PPI and Consumer Sentiment
Traders will monitor the March Producer Price Index (PPI) and the preliminary Michigan Consumer Sentiment reading. Negative surprises could further weaken the Dollar and boost the Euro. A soft PPI would reinforce arguments for a dovish Fed, while weak consumer sentiment could heighten recessionary fears and cause risk-off flows away from the Dollar.
Technical Analysis: EUR/USD Resistance and Support
Technically, EUR/USD is approaching key resistance near 1.1375. Breaking above this could lead to a move toward 1.1450. Support is around 1.1275. Momentum indicators like RSI and MACD show bullish bias, but short-term retracements are possible if upcoming US data surprises positively for the USD.
Conclusion
EUR/USD has gained momentum due to the EU's temporary tariff suspension on US imports, moderating US inflation, and revised ECB rate cut expectations. The pair is near 1.1350, and future movements will depend on trade negotiations, inflation data, and central bank communications.
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