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12 Mar 2025
EUR/USD declines to near 1.0900 on renewed US Dollar demand, US CPI data looms
- EUR/USD weakens to around 1.0900 in Wednesday’s Asian trading hours.
- Renewed USD demand weighs on the major pair.
- Traders will take more cues from the US February CPI inflation report, which is due later on Wednesday.
The EUR/USD pair attracts some sellers to near 1.0900, snapping the three-day winning streak during the Asian trading hours on Wednesday. The renewed US Dollar (USD) demand undermines the major pair. Later on Wednesday, the US February Consumer Price Index (CPI) inflation data will be in the spotlight.
The Greenback gains traction as US President Donald Trump's steel and aluminum tariffs take effect on Wednesday. The White House confirmed that fresh 25% tariffs on all imported steel and aluminum will still go into effect on Wednesday, including against allies and top US suppliers Canada and Mexico.
Furthermore, the rising bets that the European Central Bank (ECB) will cut interest rates two times more by the summer could drag the shared currency lower against the USD. Traders had fully priced in two more rate reductions amid firm confidence that the Eurozone inflation will sustainably return to the 2% target this year.
On the other hand, probable US economic slowdown and trade policy uncertainty might weigh on the Greenback. Investors are worried about US weaker economic data as well as big cuts to the government workforce and government spending. Goldman Sachs analysts last week raised its recession chance from 15% to 20%, citing it saw policy changes as the key risk to the economy.
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.