The EUR/USD currency pair staged a sharp recovery on Thursday. It recovered from trough of the 1.0735-1.0730 range that it reached to a three-week low during the Asian trading session. The increase marks the close of a six-day losing streak. During the day’s proceedings, this dynamic duo continued to build on positive momentum. The rally was buoyed by a confluence of circumstances. A relatively benign pullback in the US Dollar from multi-month highs and President Donald Trump’s recent announcement of tariff exemptions were significant contributors to this move.
The EUR/USD recovery is due to a unique set of economic and geopolitical factors. Among these, the US Dollar's selling bias played a significant role, as the currency faced pressure following Trump's trade policy decisions. We have the Federal Reserve penciled in for at least two 25 basis point rate cuts between now and year-end. This hawkish forecast has provided a strong support EUR/USD pair.
The sudden risk-off impulse in financial markets played a role in the EUR/USD’s trajectory. This risk-averse sentiment benefitted safe-haven assets, including the Japanese Yen, sending the currency pair on its downward path. Speeches by some heavy-hitters on the Federal Open Market Committee (FOMC) made for some more complicated trading activity that day. Traders were forced to operate in this additional layer of uncertainty.
Beyond speculative plays, scheduled economic data releases in the United States added to market dynamics, helping to influence performance of the EUR/USD pair. The release of the final Q4 GDP figures, along with weekly Initial Jobless Claims and Pending Home Sales data, provided insights into the US economic landscape. Such reports excited the imagination of traders and speculators. They were intensely looking to Friday’s US Personal Consumption Expenditure (PCE) Price Index.
At the same time, hawkish positions on the Bank of Japan (BoJ) further complicated the currency pair’s volatility. Fears of a looming EU-US trade war have weighed on the EUR/USD. The potential fallout is nothing short of disastrous for the two trading partners and their respective economies.
The larger economic picture and geopolitical events remain the biggest factors influencing market sentiment. Investors are closely monitoring the evolving trade policies under President Trump's administration and their potential impact on global trade relations. The prospect of a full-blown trade war between the European Union and the United States remains a key concern for market participants.
As the week rolls on, traders are going to be watching very closely for further economic signposts and indication from central banks. US inflation test on Friday would give key clues to the country’s economic health. Such information of the permanent changes could move currency markets dramatically.