The Euro-dollar currency pair recovered strongly to near 1.1390 in European trading on Wednesday after a slight correction the previous day. EURUSD strengthens as the US dollar resumes its downside journey after a short-lived recovery move.
The DXY Dollar Index, which tracks the greenback’s value against six major currencies, tumbles to near 99.40.
Financial market participants brace for more weakness in the US dollar and further upside in the EURUSD pair amid growing doubts over the greenback’s structural attractiveness due to erratic tariff announcements by US President Donald Trump.
Analysts at ING see EURUSD advancing to 1.1500 due to “weakening of the US Dollar’s appeal” as a “reserve and safe-haven asset”, while the “Euro’s high liquidity” is expected to “absorb much of the rotation away from the USD.”
Last week, President Trump declared a 90-day pause in executing reciprocal tariffs, except for China. Trump increased additional duties on Chinese imports to 145% for retaliating against reciprocal levies.
Investors doubt that the decision was well-thought-out as US importers would need to increase prices of substitutes of Chinese goods to offset the impact of sustained demand. Such a scenario will be inflationary and slow down economic growth.
In Wednesday’s session, investors will focus on the US Retail Sales data for March, a key measure of consumer spending, which is estimated to have grown at a robust pace of 1.3% during the month compared to the 0.2% increase seen in February.
Euro performs strongly ahead of ECB meeting
The Euro demonstrates strength ahead of the European Central Bank’s monetary policy decision on Thursday, where it is expected to cut its Deposit Facility Rate by 25 basis points (bps) to 2.25%.
This would be the sixth straight interest rate cut by the ECB in a row.
Traders have become increasingly confident that the ECB will cut interest rates on Thursday due to a significant slowdown in the Eurozone service inflation.
The underlying inflation rose by 3.4% year-on-year in March. This was the lowest growth in services inflation since July 2022.
As investors are confident about an interest rate cut on Thursday, they will pay close attention to the monetary policy outlook and how well the European Commission is handling trade deals with the US.
Analysts at Standard Chartered Bank expect, “if the ECB cuts this month, then the June meeting could offer an opportunity to hold, which for now is our base case.” They added that the market would have greater clarity on Germany’s fiscal stimulus plans, as well as broader defence spending increases by the June meeting, which could impact their expectations.
EURUSD chart by TradingView
(Source: OANDA)
