- EUR/USD may come under renewed pressure as the US Dollar remains supported by encouraging developments in US-China trade talks.
- The US and China have reached a preliminary agreement to significantly reduce tariffs, signaling a potential easing of trade tensions.
- The European Central Bank could prolong its monetary easing cycle in response to declining inflationary pressures.
EUR/USD opened with a bullish gap on Tuesday during the Asian session, trading near the 1.1110 level after suffering losses of over 2.5% in the previous session. The pair faced challenges as the US Dollar (USD) strengthened on the back of progress in the United States (US)-China trade negotiations.
Over the weekend, the United States and China reached a preliminary agreement in Switzerland aimed at significantly reducing tariffs, signaling a potential de-escalation in trade tensions. Under the deal, the US will lower tariffs on Chinese goods from 145% to 30%, while China will cut tariffs on US imports from 125% to 10%. The development has been well-received by markets as a step toward stabilizing global trade relations.
Attention now turns to the upcoming US Consumer Price Index (CPI) report for April, due later on Tuesday. Economists expect headline inflation to rebound to 0.3% month-over-month from -0.1% previously, while core CPI is also projected to rise to 0.3% from 0.1%. On a yearly basis, both measures are forecast to remain unchanged.
Meanwhile, the Euro (EUR) remains under pressure amid growing expectations that the European Central Bank (ECB) may extend its monetary easing cycle in response to waning inflation. Several ECB officials have hinted at further rate cuts, citing persistent trade uncertainties and a sustained disinflation trend.
However, ECB Executive Board member Isabel Schnabel offered a more cautious perspective in a speech at Stanford University on Friday. She argued that current rates are appropriate and should remain in neutral territory. Schnabel also warned of medium-term inflation risks potentially breaching the ECB’s 2% target due to ongoing global economic disruptions.
