Forex News
- AUD/JPY scales higher for the third straight day amid optimism over a US-China trade deal.
- Receding safe-haven demand undermines the JPY and lends additional support to the cross.
- The divergent BoJ-RBA policy expectations warrant caution for aggressive bullish traders.
The AUD/JPY cross attracts some follow-through buyers for the third successive day and touches over a three-week top, around the 92.00 mark during the Asian session on Friday. Moreover, the supportive fundamental backdrop suggests that the path of least resistance for spot prices remains to the upside.
Signs of easing US-China tensions continue to fuel hopes for the potential de-escalation of a trade war between the world's two largest economies and remain supportive of a positive risk tone. In fact, US President Donald Trump said on Thursday that trade talks between the US and China are underway. Adding to this, China is reportedly mulling to suspend its 125% tariff on some US imports.
The developments undermine the safe-haven Japanese Yen (JPY) and benefit antipodean currencies, including the Aussie, which, in turn, is seen acting as a tailwind for the AUD/JPY cross. However, China's Foreign Ministry spokesperson Guo Jiakun told reporters on Thursday that China and the US have not conducted consultations or negotiations on tariffs. This might cap the market optimism.
Meanwhile, data released earlier this Friday showed that consumer inflation in Tokyo accelerated in April and lifted bets for more interest rate hikes by the Bank of Japan (BoJ) in 2025. In contrast, the markets are pricing in the possibility that the Reserve Bank of Australia (RBA) will lower rates by 25 basis points (bps) in May. This might hold back bulls from placing aggressive bets around the AUD/JPY cross.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
Citing sources familiar with the matter, Bloomberg reported on Friday that China is mulling suspending its 125% tariff on some US imports including medical equipment, ethane and plane leasing.
“Officials are also discussing waiving the tariff for plane leases,” sources added.
China’s Ministry of Finance and General Administration of Customs, however, did not respond to requests for comment.
Market reaction
Following these headlines, the US Dollar (USD) rebound has gathered steam across the board. At the time of writing, AUD/USD is trading 0.20% higher on the day at 0.6415 while the US S&P 500 futures are up 0.40% so far.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
- WTI prices edge higher but remain poised for a weekly loss, driven by the prospect of increased OPEC+ output.
- Several member nations are expected to push for a second straight month of accelerated production hikes in June.
- A potential ceasefire and easing of sanctions could increase Russian Oil exports, further weighing on prices.
West Texas Intermediate (WTI) Oil price extends its gains for a second straight day, trading around $62.80 during Friday's Asian session. Despite the uptick, prices remain on course for a weekly decline due to mounting oversupply concerns fueled by the potential for increased OPEC+, the Organization of the Petroleum Exporting Countries and its allies, output.
Several OPEC+ nations are expected to advocate for a second consecutive month of accelerated production hikes in June. Kazakhstan, a key member, has stated it cannot reduce output at its major oil fields and will prioritize national interests when determining production levels.
Meanwhile, Iranian Foreign Minister Abbas Araqchi expressed willingness on Thursday to travel to Europe for discussions on Tehran's nuclear program. Progress in negotiations with Europe and the US could lead to the lifting of sanctions on Iranian Oil exports.
A potential ceasefire and easing of sanctions could also boost Russian Oil exports, adding downward pressure on prices. Russian Foreign Minister Sergey Lavrov noted that talks with the US are progressing toward ending the war in Ukraine, though some key issues remain unresolved. However, US President Donald Trump criticized Vladimir Putin on Thursday following Russia's overnight missile and drone attacks on Kyiv, urging, “Vladimir, STOP!”
Adding to the bearish sentiment, the demand outlook remains weak amid ongoing US-China trade tensions. The world’s two largest Oil consumers are locked in a prolonged trade dispute, leading to higher business costs, downgraded financial forecasts, and disruptions in global supply chains—factors that have raised fears of a global economic slowdown that could dampen Oil demand.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
- USD/CAD edges higher as the US Dollar strengthens due to optimism surrounding potential US trade deals.
- Washington appears to be making headway in early trade discussions with Asian allies, including South Korea and Japan.
- The Canadian Dollar remains under pressure as Trump suggested that the 25% tariff on Canadian auto imports could be raised.
USD/CAD recovers its recent losses from the previous session, trading around 1.3870 during the Asian hours on Friday. The pair gains as the US Dollar (USD) strengthens, supported by optimism surrounding potential US trade deals. According to Reuters, Washington appears to be making headway in early trade discussions with Asian allies, including South Korea and Japan.
However, the Greenback encountered some pressure following Thursday’s release of Initial Jobless Claims data. The US Department of Labor reported that claims rose to 222,000 for the week ending April 19, slightly exceeding expectations and up from the prior week’s revised figure of 216,000. Meanwhile, Continuing Jobless Claims fell by 37,000 to 1.841 million for the week ending April 12.
Minneapolis Fed President Neel Kashkari expressed concern late Thursday about the potential for future layoffs amid ongoing uncertainty. While he noted that there hasn’t been a noticeable increase in layoffs yet, some businesses are reportedly preparing for that possibility if uncertainty persists. Kashkari added that resolving trade tensions could ease concerns and support a more optimistic outlook.
Additionally, the USD/CAD pair gained further support as the Canadian Dollar (CAD) came under pressure following comments from US President Donald Trump on Wednesday. Trump suggested that the 25% tariff on Canadian auto imports could be raised, reinforcing his commitment to securing a trade deal with Canada. The goal, he emphasized, is to bolster US auto production and lessen dependence on foreign vehicles, according to Reuters.
Canadian Dollar PRICE Today
The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.39% | 0.28% | 0.23% | 0.11% | 0.23% | 0.25% | 0.42% | |
| EUR | -0.39% | -0.11% | -0.15% | -0.30% | -0.15% | -0.13% | 0.02% | |
| GBP | -0.28% | 0.11% | -0.04% | -0.17% | -0.03% | -0.02% | 0.11% | |
| JPY | -0.23% | 0.15% | 0.04% | -0.12% | -0.02% | -0.02% | 0.14% | |
| CAD | -0.11% | 0.30% | 0.17% | 0.12% | 0.04% | 0.14% | 0.28% | |
| AUD | -0.23% | 0.15% | 0.03% | 0.02% | -0.04% | 0.02% | 0.15% | |
| NZD | -0.25% | 0.13% | 0.02% | 0.02% | -0.14% | -0.02% | 0.13% | |
| CHF | -0.42% | -0.02% | -0.11% | -0.14% | -0.28% | -0.15% | -0.13% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Canadian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent CAD (base)/USD (quote).
- NZD/USD loses ground to around 0.5985 in Friday’s Asian session.
- China told the US to cancel all unilateral tariffs if it wants talks.
- China's Finance Ministry said current world economic growth momentum was insufficient due to tariff threats and trade wars.
The NZD/USD pair edges lower to around 0.5985 during the Asian session on Friday, pressured by the firmer Greenback. The lack of progress toward defusing the US-China trade deal exerts some selling pressure on the China-proxy Kiwi. The final reading of Michigan Consumer Sentiment is due later on Friday.
US President Donald Trump said late Thursday that his administration was talking with China on trade. Meanwhile, China said that no negotiations had been held on the economy and trade, and it urged the US to lift all unilateral tariff measures if it really wished to resolve the issue. Concerns over trade tensions between the world’s two largest economies could undermine the New Zealand Dollar (NZD), as China is a major trading partner to New Zealand.
The rising bets that the Reserve Bank of New Zealand (RBNZ) will lower its Official Cash Rate (OCR) at the May meeting might contribute to the NZD’s downside. The markets fully expect the RBNZ to cut its 3.5% OCR by 25 basis points (bps) in May, with a further reduction to 2.75% by year-end.
China's Finance Ministry said on Friday that the current world economic growth momentum was insufficient, with tariff and trade wars further impacting economic and financial stability. Meanwhile, People's Bank of China (PBOC) Governor Pan Gongsheng noted that economic fragmentation and trade tensions continue to disrupt the industrial supply chain and weaken the momentum of global growth. However, any positive developments surrounding Chinese stimulus measures could help limit the Kiwi’s losses in the near term.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
People's Bank of China (PBOC) Governor Pan Gongsheng said on Friday that all parties expressed concern about the negative impact of trade frictions. Pan added that economic fragmentation and trade tensions continue to disrupt the industrial supply chain and weaken the momentum of global growth.
Key quotes
All parties called for the strengthening of dialogue and policy coordination.
All parties support the construction of a more stable, efficient, and resilient international financial architecture.
Economic fragmentation and trade tensions continue to disrupt the industrial supply chain and weaken the momentum of global growth.
Major economies should strengthen participation in policy coordination.
At present, China's economy is off to a good start, continues to rebound to a good trend and financial markets are running smoothly.
Will implement a moderate and loose monetary policy to promote the development of the Chinese economy.
Market reaction
At the press time, the AUD/USD pair was down 0.03% on the day to trade at 0.6407.
PBOC FAQs
The primary monetary policy objectives of the People's Bank of China (PBoC) are to safeguard price stability, including exchange rate stability, and promote economic growth. China’s central bank also aims to implement financial reforms, such as opening and developing the financial market.
The PBoC is owned by the state of the People's Republic of China (PRC), so it is not considered an autonomous institution. The Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, has a key influence on the PBoC’s management and direction, not the governor. However, Mr. Pan Gongsheng currently holds both of these posts.
Unlike the Western economies, the PBoC uses a broader set of monetary policy instruments to achieve its objectives. The primary tools include a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions and Reserve Requirement Ratio (RRR). However, The Loan Prime Rate (LPR) is China’s benchmark interest rate. Changes to the LPR directly influence the rates that need to be paid in the market for loans and mortgages and the interest paid on savings. By changing the LPR, China’s central bank can also influence the exchange rates of the Chinese Renminbi.
Yes, China has 19 private banks – a small fraction of the financial system. The largest private banks are digital lenders WeBank and MYbank, which are backed by tech giants Tencent and Ant Group, per The Straits Times. In 2014, China allowed domestic lenders fully capitalized by private funds to operate in the state-dominated financial sector.
On Friday, the People’s Bank of China (PBOC) set the USD/CNY central rate for the trading session ahead at 7.2066 as compared to the previous day's fix of 7.2098.
PBOC FAQs
The primary monetary policy objectives of the People's Bank of China (PBoC) are to safeguard price stability, including exchange rate stability, and promote economic growth. China’s central bank also aims to implement financial reforms, such as opening and developing the financial market.
The PBoC is owned by the state of the People's Republic of China (PRC), so it is not considered an autonomous institution. The Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, has a key influence on the PBoC’s management and direction, not the governor. However, Mr. Pan Gongsheng currently holds both of these posts.
Unlike the Western economies, the PBoC uses a broader set of monetary policy instruments to achieve its objectives. The primary tools include a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions and Reserve Requirement Ratio (RRR). However, The Loan Prime Rate (LPR) is China’s benchmark interest rate. Changes to the LPR directly influence the rates that need to be paid in the market for loans and mortgages and the interest paid on savings. By changing the LPR, China’s central bank can also influence the exchange rates of the Chinese Renminbi.
Yes, China has 19 private banks – a small fraction of the financial system. The largest private banks are digital lenders WeBank and MYbank, which are backed by tech giants Tencent and Ant Group, per The Straits Times. In 2014, China allowed domestic lenders fully capitalized by private funds to operate in the state-dominated financial sector.
- GBP/USD drifts lower to near 1.3310 in Friday’s early Asian session, down 0.21% on the day.
- The UK Finance Minister said she was confident Britain could reach a trade deal with the US.
- UK March Retail Sales report will take center stage later on Friday.
The GBP/USD pair attracts some sellers to around 1.3310 during the early Asian session on Friday, pressured by the renewed US Dollar (USD) demand. The UK Retail Sales data for March will be the highlight later on Friday.
The Greenback edges higher amid the optimism about a US trade deal announcement, which acts as a headwind for the major pair for the time being. UK Finance Minister Rachel Reeves said on Thursday she was confident Britain could reach a trade deal with the US.
Reeves is scheduled to meet US Treasury Secretary Scott Bessent on Friday. High on the agenda will be a possible trade deal, which Britain hopes will reduce the hit from Trump's import tariffs to its exporters of goods, including cars and steel. Investors await further developments in the US-UK trade talks.
The gloomy UK economic outlook and rising bets of further rate cuts by the Bank of England (BoE) could drag the Pound Sterling (GBP) lower. The International Monetary Fund (IMF) anticipated three interest rate cuts by the BoE and has revised UK Gross Domestic Product (GDP) growth for 2025 to 1.1% from 1.6% forecast earlier.
The UK Retail Sales data for March will be closely watched on Friday. The figure is expected to decline by 0.4% MoM in March after rising by 1% in February. In case of a stronger-than-expected outcome, this might help limit the GBP’s losses in the near term.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling 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, its currency will benefit 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.
China's Finance Ministry said on Friday that the current world economic growth momentum was insufficient, with tariff and trade wars further impacting economic and financial stability, per Reuters. He called on all parties to further improve the international economic and financial system by strengthening multilateral cooperation.
Key quotes
Tariff wars and trade wars have further affected economic and financial stability.
All parties should further improve the international economic and financial system by strengthening multi-lateral cooperation.
All parties should pool more resources for Africa's development.
Market reaction
At the time of writing, AUD/USD is holding higher ground near 0.6400, losing 0.14% on the day.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
- EUR/USD softens to around 1.1380 in Friday’s early Asian session.
- Trump said the US was negotiating with China on trade after Beijing’s denial.
- Traders have become increasingly confident that the ECB will cut interest rates in the June meeting.
The EUR/USD pair weakens to near 1.1380 during the early Asian session on Friday. However, the downside for the major pair might be limited as investors remain concerned about the US-China trade tensions. Later on Friday, the final reading of Michigan Consumer Sentiment will be released.
US President Donald Trump said late Thursday that his administration was talking with China on trade. Meanwhile, China said that no negotiations had been held on the economy and trade, and it urged the US to lift all unilateral tariff measures if it really wished to resolve the issue. Concerns over potential tariff threats by Trump and persistent trade tensions are likely to weigh on the Greenback and act as a tailwind for EUR/USD in the near term.
"It seems like there's a gulf as wide as the Pacific Ocean between how the U.S. and China are viewing trade," said Matt Weller, head of market research at StoneX. "And I think as long as that gulf remains, the rallies in the dollar might be short-lived.”
Across the pond, traders raise their bets that the European Central Bank (ECB) will cut interest rates in the June policy meeting due to the dovish remarks from the ECB policymakers. This, in turn, undermines the shared currency against the USD.
ECB policymaker and Finnish central bank governor Olli Rehn said on Thursday that the central bank should not rule out a "larger interest rate cut". Meanwhile, ECB Governing Council member Madis Muller said on Wednesday that the central bank may have to lower interest rates to levels that stimulate the economy if trade uncertainty proves more damaging to growth.
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.
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