The EUR/USD pair opened the week on a positive note, trading around 1.0860 during Monday’s Asian session, driven by concerns over a potential slowdown in the US economy. The currency pair’s upward momentum is largely attributed to the uncertainty surrounding the US economic outlook, with San Francisco Fed President Mary Daly stating late Sunday that rising uncertainty among businesses could dampen demand, though it does not warrant an immediate change in interest rates.
On Friday, the US Bureau of Labor Statistics (BLS) reported that February’s Nonfarm Payrolls (NFP) increased by just 151,000, falling short of the anticipated 160,000. January’s job growth was also revised down to 125,000 from the previously reported 143,000, signaling signs of a cooling labor market. This weaker-than-expected data has the potential to pressure the US Dollar (USD), giving the EUR/USD pair a boost.
Meanwhile, US Commerce Secretary Howard Lutnick confirmed that the 25% tariffs imposed by President Donald Trump on steel and aluminum imports, scheduled to take effect on Wednesday, are unlikely to be delayed. While US steelmakers have supported the tariffs, businesses dependent on these materials could face higher costs, potentially dampening market sentiment and strengthening the USD. This dynamic could cap further upside for EUR/USD.
The Euro (EUR) found some support from Germany’s fiscal reforms. Major political parties in Germany have proposed changes to the country’s debt brake to increase defense spending and fund a €500 billion infrastructure initiative aimed at stimulating economic growth. Furthermore, European leaders agreed to substantially boost defense spending to enhance the continent’s military capabilities.
On the monetary policy front, the European Central Bank (ECB) recently implemented a widely anticipated 25 basis points (bps) rate cut and signaled that its policy stance is becoming less restrictive, hinting at a potential pause in future rate reductions. Market participants are now expecting one or two additional 25bps cuts later this year.
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