- EUR/USD declines as President Trump threatens 25% tariffs on select goods.
- The Fed is likely to maintain interest rates for an extended period.
- Persistent ECB dovish expectations limit the Euro’s gains.
EUR/USD declines toward 1.0420 in early North American trading on Wednesday as the US Dollar (USD) gains momentum. The US Dollar Index (DXY) climbs near 107.20, driven by renewed fears over President Donald Trump’s tariff plans.
On Tuesday, Trump announced a 25% tariff on automobiles, semiconductors, and pharmaceuticals, with some measures set to take effect by April 2. However, he did not provide a full timeline for implementation. Market participants expect Germany, Japan, South Korea, Taiwan, and India to be among the most affected.
Market Movers: EUR/USD Weakens Ahead of FOMC Minutes
- The US Dollar strengthens as investors grow confident that the Federal Reserve (Fed) will keep interest rates at 4.25%-4.50% for an extended period. The CME FedWatch tool indicates no rate changes in March, May, or June.
- San Francisco Fed President Mary Daly emphasized that monetary policy must remain restrictive until further progress is seen on inflation, signaling caution before any policy adjustments.
- Daly also noted that it’s too early to gauge the economic impact of Trump’s policies, as their full scope and timing remain uncertain.
- The FOMC Minutes for January, set for release at 19:00 GMT, will provide further insights into the Fed’s policy stance.
- On the ECB front, traders expect three rate cuts this year, though ECB executive board member Isabel Schnabel warned that risks to inflation remain, and a halt in monetary easing could be necessary.
- Despite market expectations for rate cuts, Schnabel highlighted persistent domestic inflation and elevated wage growth, along with potential energy price shocks.
Technical Analysis: EUR/USD Struggles Near 50-Day EMA
EUR/USD dips toward 1.0420 in early North American trading on Wednesday, hovering around the 50-day Exponential Moving Average (EMA) at 1.0430.
The 14-day Relative Strength Index (RSI) remains below the 60.00 threshold, indicating a lack of bullish momentum. A sustained break above this level could confirm further upside potential.
On the downside, 1.0285 (February 10 low) serves as key support, while resistance stands at 1.0630 (December 6 high) for Euro bulls.
