Saad Ullah
EUR/USD (EUR) dropped to 1.0420 as the US Dollar gained momentum amid renewed tariff concerns from Donald Trump. Investors are focusing on the Fed’s interest rate outlook and upcoming FOMC minutes.
EUR/USD (EUR) Drops as US Dollar Gains Strength
EUR/USD (EUR) fell to 1.0420 during early North American trading on Wednesday as the US Dollar (USD) surged, driven by multiple economic factors. The US Dollar Index (DXY) climbed to 107.20, reflecting increased demand for the Greenback amid fears of fresh trade tariffs announced by former U.S. President Donald Trump.
Trump’s latest proposal includes 25% tariffs on automobiles, semiconductors, and pharmaceuticals, further fueling investor concerns. While the exact timeline for these tariffs remains unclear, Trump indicated that some measures will be enacted by April 2. Market analysts believe Germany, Japan, South Korea, Taiwan, and India will be among the most affected economies.
Trump’s Tariff Plans Weigh on EUR/USD (EUR)
Germany, one of the largest economies in the Eurozone, could face significant challenges due to its strong reliance on automobile exports. Bundesbank President Joachim Nagel acknowledged these risks, stating that Germany’s “strong export orientation” makes it “particularly vulnerable from potential Trump tariffs.”
As a result, the European Central Bank (ECB) faces growing pressure to reassess its monetary policy approach. Traders have already priced in three rate cuts for 2025, expecting the ECB to ease economic pressures. However, ECB executive board member Isabel Schnabel warned that inflation risks remain high and that borrowing costs have significantly eased.
Fed Policy and Interest Rate Outlook Impact EUR/USD (EUR)
Investor sentiment surrounding the Federal Reserve’s monetary policy has further contributed to the EUR/USD’s (EUR) weakness. Market participants now expect the Fed to maintain interest rates at 4.25%- 4.50% through at least June. The CME FedWatch tool suggests little chance of rate cuts in the upcoming policy meetings.
San Francisco Fed President Mary Daly reinforced this outlook, stating that monetary policy must remain restrictive to ensure continued progress in controlling inflation. She also noted uncertainty regarding the impact of Trump’s trade policies on economic growth, inflation, and labor markets.
Traders will closely watch the Federal Open Market Committee (FOMC) minutes, which are set for release at 19:00 GMT, to gain further clarity on the Fed’s stance.
Technical Analysis: EUR/USD (EUR) Faces Key Resistance
EUR/USD (EUR) continues to hover near the 50-day Exponential Moving Average (EMA) at 1.0430. The 14-day Relative Strength Index (RSI) struggles to break above 60.00, indicating weak bullish momentum.
- Support Levels: The February 10 low of 1.0285 serves as a key support zone.
- Resistance Levels: The December 6 high of 1.0630 remains a crucial barrier for Euro bulls.
Should the pair break below 1.0285, a further decline could be expected. Conversely, a move above 1.0630 could signal renewed bullish momentum for EUR/USD (EUR).
Saad Ullah
