EUR/USD trades lower to near the 10-day low of 1.0815 in Friday's North American session. The major currency pair faces selling pressure as the US Dollar (USD) strengthens after the Federal Reserve (Fed) expressed in the policy meeting on Wednesday that interest rate cuts are not on the table in the current scenario. The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, rises to near 104.15.
On Wednesday, the Fed kept interest rates steady in the range of 4.25%-4.50% for the second time in a row, as expected. Fed Chair Jerome Powell said in the press conference that the central bank is not going to be in a "hurry" to move onto "interest rate cuts". His comments supporting a restrictive monetary policy stance stemmed from "unusually elevated" uncertainty over the United States (US) economic outlook.
Powell commented that the implementation of new policies by US President Donald Trump could lead to an economic slowdown and a resurgence in inflationary pressures in the near term.
During North American trading hours on Friday, Chicago Fed President Austan Goolsbee also supported a 'wait and see' approach for the interest rate policy in an interview with CNBC. "The Fed needs to be a steady hand and take the long view on the economy," Goolsbee said. He added that before judging how "monetary policy reacts to tariffs", the Fed needs to know how long the "tariffs last, possible retaliation, pass through to consumers". Goolsbee further added that the Fed also has to interpret the impact of incoming tax cuts and other issues.
Meanwhile, investors seek meaningful updates on Trump's plan of imposing reciprocal tariffs on April 2. Market participants expect tariffs might affect economic growth and boost price pressures across the globe. Globally, manufacturers will be forced to underutilize their production capacity, which could result in fresh escalation in cost-push inflation.
On the economic front, investors will focus on the flash US S&P Global Purchasing Managers Index (PMI) data for March, which will be released on Monday.
The downside move in the EUR/USD pair is also driven by weakness in the Euro (EUR) amid fears that US President Trump's reciprocal tariffs will significantly impact the Eurozone's economic growth.
European Central Bank President Christine Lagarde has also warned about downside economic risks from the Trump-led trade war and dials back fears of persistently higher Eurozone inflation. On Thursday, Lagarde said before the European Parliament Committee that the inflationary impact of the trade war would be temporary as the effect would "ease in the medium term" due to "lower economic activity dampening inflationary pressures".
The major victim of Trump's reciprocal tariffs is expected to be Germany, a leading trading partner of the US. The US charges a 2.5% levy on the import of German cars while the Eurozone takes 10% duty. Till now, Trump has threatened to impose 25% tariffs on foreign automobiles and introduce reciprocal tariffs soon. Investors seek to know whether the US will impose 10% or 25% tariffs on German cars.
Meanwhile, the approval for the infusion of billions of Euros into the German economy through the expansion of borrowing limit by officials at Bundestag lower house of parliament is expected to support the economy from potential US tariff fears. This week, likely Chancellor Frederich Merz-led-Conservatives and the Social Democratic Party (SDP) secured support from the Greens for the creation of an infrastructure fund worth 500 billion Euro (EUR) and breaking fiscal conservatism to boost defense spending.
Source: fxstreet
