Last Thursday, the EUR/USD exchange rate jumped sharply. During the European trading session, it broke above that important barrier of 1.1000. That impressive bump can be attributed to a number of factors. It features the new German coalition deal, and former President Donald Trump’s announcement last week of a 90-day reciprocal tariff pause. Altogether, these advances have brought new buyers to the euro. Overall, they’ve helped improve risk sentiment across the market.
This rally EUR/USD is part of the broader reaction to political and economic posturing that has complicated and at times shaken investor confidence. Taken together, the recent German coalition deal should signal stability and continuity in what is arguably Europe’s largest economy. That stability has been a key ingredient for reinforcing the euro. At the same time, Trump’s decision to pause higher tariffs on 56 countries, including member states of the European Union, has alleviated some trade tensions, further encouraging market participants.
Throughout the past few sessions, the pair has traded with an extremely strong upward trend, adding further pressure on the US dollar. Buyers have returned in force and it is sending the dollar’s value plummeting. The traders you see are responding to every development from home and abroad. Finally, political stability in the form of a stable German coalition government has further lifted investor confidence. Combined with lower trade barriers, this combination has created an unprecedented wave of purchase activity for the euro.
The market is still taking these announcements into account. The focus now moves towards next week’s economic data releases, which could determine the next direction for EUR/USD’s future path. US Consumer Price Index (CPI) data coming out shortly. Traders are anticipating it to swing things heavily in either direction for the currency pair. Watch for core CPI inflation to fall below 3% y/y during this stretch, analysts say. This modification would be a big step toward keeping the dollar strong.
The ramifications of Trump’s tariff halt are huge. His successor, the Biden administration, not only maintained these tariffs but all other tariffs at this baseline rate of 10%. This ruling provides markets a much-needed reprieve from the confusion and chaos of ongoing international trade policy tumult. This announcement has injected renewed hope in global investors, leading to a new wave of buying pressure on the euro against the dollar.
Additionally, the general risk sentiment across the broader market is looking better as traders are embracing optimism surrounding all of these positive changes. Positive trading conditions make investors rush after riskier assets such as euro. This additional demand serves to strengthen the euro relative to the dollar. US-China trade relations remains a critical focus area for investors. Any new action here would be a game changer, shifting the dynamics of the market.
Traders are laser-focused on the euro/USD pair. This dynamic will be ever more important as geopolitical factors continue to shift. Since the recent events have been used primarily to speak of the strength of the euro. This goes to show how integrated global markets are and how instantly they react to bad news.