Euro Slides to $1.16 on EU Diplomatic Reaction to US Tariff
The euro fell to $1.16, the lowest level in about a month, pressured by a modest rebound in the US dollar while the European Union seeks to close a trade deal with the United States.
Today, the US dollar’s strength was supported by easing expectations of Fed rate cuts this year, following recent inflation. Boosting sentiment in the forex market, President Donald Trump has signaled he would not dismiss Fed Chair Jerome Powell for failing to cut fund rates despite threats.
The market saw an increase in demand for dollars while companies closed options previously hedged against the world’s dominant currency in the forex market.
The dollar index (DXY) regained strength as investors’ sentiment fueled renewed interest in dollar positions. Hence, the dollar rose to a three-week high after former President Trump said he had no plans to fire Fed Chair Jerome Powell, despite criticizing the Fed for being too slow to cut interest rates.
Any move by the White House to remove Fed Chair Powell is likely to be very damaging for USD, says Sean Callow, market strategist at InTouch Capital Markets.
Such a move may drive down short-end yields in anticipation of the appointment of a more dovish central bank head and add risk and inflation premiums to longer-dated U.S. debt, he says in a note.
The markets remain focused on trade developments, with optimism persisting that a deal between the US and the EU could be reached before August 1st.
President Trump announced a 30% tariff on European Union imports starting next month but later expressed willingness to negotiate.
In response, the EU reaffirmed its commitment to securing a trade agreement. On the monetary policy front, investors broadly expect the ECB to hold interest rates steady at its meeting next week.
However, markets are still pricing in one additional 25 basis point rate cut later this year. Eurozone inflation was confirmed at 2% year-on-year in June, with core inflation holding at 2.3%.
Elsewhere, the Australian dollar weakened to below $0.650 on Thursday, pulling back gains from the previous session, as weaker-than-expected labor data reinforced expectations of an RBA rate cut in August.
The Australian Bureau of Statistics reported that the unemployment rate rose to 4.3% in June from 4.1% in May, exceeding the market forecast of 4.1%, while employment increased by just 2K, well below the expected 20K gain.
The soft labor market print added to evidence of a slowing economy, reinforcing expectations for policy easing. Markets are now pricing in an 89% chance of a 25-basis-point rate cut at the Reserve Bank of Australia’s August meeting, as policymakers weigh rising unemployment against subdued inflation.
Adding to the pressure, the dollar gained on rising Treasury yields that boost demand for US assets, but its advance was limited by concerns over Fed independence. #Euro Slides to $1.16 on EU Diplomatic Reaction to US Tariff#
