EUR/USD advances to 1.1485 region, fresh high since February 2022 amid bearish USD
- EUR/USD kicks off the new week on a stronger note amid sustained USD selling bias.
- Trade-related uncertainties and Fed rate cut bets continue to weigh on the Greenback.
- The ECB’s dovish rate cut last week does little to dent the bullish tone around the pair.
The EUR/USD pair breaks out through a multi-day-old trading range and touches a fresh high since February 2022, around the 1.1485 area during the Asian session on Monday. The momentum is sponsored by the bearish sentiment surrounding the US Dollar (USD), which supports prospects for an extension of the recent well-established uptrend.
Despite hawkish comments from Federal Reserve (Fed) Chair Jerome Powell, the uncertainty over US President Donald Trump's trade policies continues to undermine the Greenback. Powell said last Wednesday that the Fed is likely to keep its benchmark interest rate steady and wait for greater clarity before considering any adjustments to the policy stance. Meanwhile, Trump's back-and-forth tariff announcements have dented investors' confidence in the US economic growth and dragged the USD to a two-year low at the start of a new week.
The aforementioned factors, to a larger extent, offset the European Central Bank’s (ECB) dovish decision last week and act as a tailwind for the EUR/USD pair. The ECB lowered interest rates for the seventh time in a year on Thursday and warned that economic growth will take a big hit from US tariffs, bolstering the case for more policy easing in the months ahead. This, however, does little to attract any meaningful sellers around the shared currency, validating the near-term positive outlook for the currency pair amid relatively thin liquidity on Easter Monday.
Moving ahead, traders this week will take cues from scheduled speeches by ECB President Christine Lagarde on Tuesday and a slew of influential FOMC members this week. Apart from this, the market focus will be on the release of the flash PMIs, which might provide a fresh insight into the global economic health. This, in turn, might provide some impetus to the USD and the EUR/USD pair. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the currency pair remains to the upside and any corrective pullback is likely to be bought into.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.