- EUR/USD falls sharply to near 1.0420 as the safe-haven appeal of the US Dollar has strengthened in a risk-off environment.
- The Fed is expected to leave interest rates unchanged, while the ECB is set to cut them by 25 bps, both this week.
- US Treasury Bessent proposes a 2.5% tariff hike universally, which will increase at the same pace every month.
EUR/USD tumbles to near 1.0420 in Tuesday’s North American session. The major currency pair weakens as the US Dollar (USD) strengthens amid a global sell-off in technology, power, and data center stocks, which has increased its safe-haven appeal. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, surges to near 108.00.
Investors are dumping technology stocks as Chinese DeepSeek’s low-cost Artificial Intelligence (AI) model has challenged the dominance of current AI players and their related entities across the globe.
Meanwhile, deepening uncertainty over US President Trump’s universal tariff plan and the Federal Reserve’s (Fed) monetary policy announcement on Wednesday has also strengthened the US Dollar. Soon after being selected as US Treasury Secretary, Scott Bessent proposed the plan of imposing a universal 2.5% tariff plan, which will increase gradually each month until reaching Trump’s guidance of 20%.
Market experts believe that the gradual introduction of tariffs will give more time for the US to negotiate harder and close better deals with their trading partners.
On the monetary policy front, the Fed is almost certain to leave interest rates unchanged in the range of 4.25%-4.50%. Therefore, investors will mainly focus on Fed Chair Jerome Powell’s press conference after the policy decision for fresh interest rate guidance. Analysts at Macquarie expect that Powell is unlikely to offer much in this regard other than emphasizing the “data dependence of future decisions” while highlighting “uncertainty about the neutral rate”.
In Tuesday’s session, the Durable Goods Orders contracted in December unexpectedly. The US Census Bureau reported that the Durable Goods Orders declined at a faster pace of 2.2%, compared to 2% in November, downwardly revised from 1.1%. Economists expected new orders for Durable Goods to have grown by 0.8%.
US Dollar PRICE Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.60% | 0.57% | 0.58% | 0.21% | 0.84% | 0.73% | 0.48% | |
| EUR | -0.60% | -0.03% | -0.05% | -0.39% | 0.23% | 0.12% | -0.13% | |
| GBP | -0.57% | 0.03% | 0.04% | -0.37% | 0.22% | 0.14% | -0.10% | |
| JPY | -0.58% | 0.05% | -0.04% | -0.37% | 0.25% | 0.12% | -0.11% | |
| CAD | -0.21% | 0.39% | 0.37% | 0.37% | 0.62% | 0.51% | 0.26% | |
| AUD | -0.84% | -0.23% | -0.22% | -0.25% | -0.62% | -0.11% | -0.34% | |
| NZD | -0.73% | -0.12% | -0.14% | -0.12% | -0.51% | 0.11% | -0.25% | |
| CHF | -0.48% | 0.13% | 0.10% | 0.11% | -0.26% | 0.34% | 0.25% |
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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Daily digest market movers: EUR/USD weakens as investors turn cautious ahead of Fed-ECB policy decisions
- EUR/USD weakens amid strength in the US Dollar. The Euro (EUR) trades cautiously against its major peers as investors await the European Central Bank’s (ECB) interest rate decision, which will be announced on Thursday. Investors expect the ECB to cut its Deposit Facility rate by 25 basis points (bps) to 2.75% amid a sluggish Eurozone economic outlook and confidence that inflationary pressures will sustainably return to the central bank’s target of 2%.
- Given that traders have fully priced in a 25 bps interest rate reduction from the ECB, investors will pay close attention to President Christine Lagarde’s press conference to know the impact of Trump’s tariffs, if imposed, on the economic and monetary policy outlook.
- Christine Lagarde warned last week at the World Economic Forum (WEF) in Davos that Europe must “anticipate what will happen” and be “prepared in order to respond,” as Trump’s tariffs would be “selective” and “focused.”
- Analysts at Citi expect the ECB to reduce interest rates by 25 bps at every meeting “until at least the summer”.
Technical Analysis: EUR/USD struggles to hold above 50-day EMA
EUR/USD struggles around the 50-day Exponential Moving Average (EMA), which trades around 1.0456 since the last two trading days on Tuesday. The major currency pair corrects to near 1.0420 after failing to extend its upside move above the key resistance of 1.0530. The near-term outlook remains firm as the pair holds the 20-day EMA, which trades around 1.0390.
On the downside, the downward-sloping trendline from the 30 September 2024 high of 1.1209 will act as major support for the Euro bulls.
The 14-day Relative Strength Index (RSI) struggles to climb above the 60.00 hurdle, suggesting that the trend would be sideways.
Looking down, the January 20 low of 1.0266 will be the key support zone for the pair. Conversely, the December 6 high of 1.0630 will be the key barrier for the Euro bulls.
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.
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