The EUR/USD currency pair extended its upward momentum on Friday, trading near 1.1350 during the Asian session. The strength in the Euro (EUR) comes on the back of a major geopolitical shift: the European Union (EU) has announced a 90-day suspension of newly proposed 25% tariffs on United States (US) imports.
This surprise move aims to ease transatlantic trade tensions and create a temporary window for diplomatic negotiations. The article contains a full analysis crafted by the knowledgeable team at Raliplen.
EU Trade Policy Reversal Lifts the Euro
The rally in EUR/USD was primarily driven by a sudden de-escalation in EU-US trade friction. Earlier in the week, the EU had indicated a sharp retaliatory stance following Washington’s brief implementation of a 20% reciprocal tariff.
However, a midweek policy reversal by the White House has led to a more moderate 10% duty on EU exports to the US, effective until July. The previously announced 25% tariffs on US-bound steel, aluminum, and automobiles will remain intact, but the new wave of tariffs has been temporarily shelved.
This softer tone from both sides has injected optimism into the markets, boosting the Euro while weakening the US Dollar (USD). The EU’s decision to pause punitive measures demonstrates a strategic willingness to negotiate and potentially avoid a full-blown trade conflict. Currency markets responded swiftly, with EUR/USD advancing for the second consecutive day.
Market Repricing of ECB Rate Path
Another critical factor fueling the Euro’s strength is the ongoing adjustment in European Central Bank (ECB) rate expectations. Traders have scaled back their anticipation of aggressive rate cuts amid improving sentiment and resilient economic indicators.
As of Friday, markets are now pricing in a deposit facility rate of 1.8% by December, a shift from 1.65% on Wednesday and 1.9% the previous week. This indicates a modest repricing, suggesting fewer or more delayed rate cuts ahead. Notably, the probability of an April rate cut has dropped to 90%, down from a full 100% probability earlier in the week.
This shift in sentiment reflects not just geopolitical developments but also underlying confidence in the Eurozone‘s economic resilience, especially in contrast to softening US inflation data.
Weaker US CPI Undermines Dollar Strength
The US Dollar continues to face pressure amid signs of cooling inflation and growing investor uncertainty about the Fed’s next move. On Thursday, the US Consumer Price Index (CPI) showed a notable deceleration in inflationary pressures.
The headline CPI for March came in at 2.4% year-over-year, down from 2.8% in February and below the expected 2.6%. Every month, the index declined by 0.1%, indicating easing price pressures across key sectors.
Meanwhile, the core CPI, which excludes volatile food and energy costs, rose 2.8% YoY, also below the consensus forecast of 3.0% and the previous reading of 3.1%. Month-over-month, core CPI edged up just 0.1%, further underlining the cooling trend.
These figures signal that inflation is moderating more rapidly than previously expected, reducing the urgency for the Federal Reserve (Fed) to maintain a restrictive monetary policy stance. As a result, the US Dollar Index (DXY) has slipped to around 100.20, reinforcing EUR/USD‘s bullish trajectory.
Eyes on Upcoming US Data: PPI and Consumer Sentiment
Looking ahead, traders will closely watch the release of two pivotal US data points due later: the March Producer Price Index (PPI) and the preliminary Michigan Consumer Sentiment reading. Any downside surprises in these indicators could further weigh on the Dollar and support continued strength in the Euro.
Should the PPI confirm softening inflation at the wholesale level, it would strengthen the argument for a dovish Fed stance. Similarly, weak consumer sentiment data may amplify recessionary fears, prompting risk-off flows away from the Dollar.
Technical Overview: EUR/USD Targets Resistance Near 1.1375
From a technical standpoint, EUR/USD is approaching a key resistance zone near 1.1375, last tested in early March. A clear break above this level could open the door for a move toward 1.1450, especially if bullish macro and sentiment factors remain in play.
Support is seen around 1.1275, where previous consolidation occurred earlier in the week. Momentum indicators such as RSI and MACD are signaling continued bullish bias, though traders should be cautious of potential retracements in the near term, particularly if upcoming US data provides a USD-positive surprise.
Conclusion
The EUR/USD pair has gained considerable traction following the EU‘s decision to temporarily suspend new tariffs on US imports. Coupled with moderating US inflation and revised expectations for ECB rate cuts, the macro environment has tilted in favor of the Euro.
As the pair hovers near the 1.1350 mark, further developments in trade negotiations, inflation data, and central bank rhetoric will likely determine the direction of the next major move.
COMTEX_465097510/2922/2025-05-01T02:50:54
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