The EUR/USD pair saw mild buying interest in early Asian trading on Friday, advancing toward 1.1370 as the US Dollar (USD) continued to face pressure amid growing concerns over the economic fallout from Washington’s escalating tariff policies. With trading volumes expected to remain subdued due to the Good Friday holiday, investor focus remains sharply fixed on the progress of US trade negotiations.
ECB Cuts Rates Amid Tariff-Driven Slowdown
On Thursday, the European Central Bank (ECB) delivered its third interest rate cut of the year, lowering the main refinancing rate to 2.25% in response to deteriorating economic conditions. ECB President Christine Lagarde cited a sharp increase in US tariffs on European Union goods—from an average of 3% to 13%—as a key factor weighing on the eurozone’s growth outlook.
Lagarde’s remarks underscored the ECB’s dovish shift, with many analysts expecting another rate cut as early as June unless there is a significant de-escalation in trade tensions. “The focus has clearly shifted toward downside risks to growth, rather than upside inflation risks,” noted Kirstine Kundby-Nielsen, FX analyst at Danske Bank. While easing policy aims to support the eurozone economy, the dovish tone may cap the euro’s upside in the near term.
Fed Hawkishness Limits Euro Gains
Across the Atlantic, Federal Reserve Chair Jerome Powell struck a markedly different tone, warning that persistent inflation coupled with economic slowdown could jeopardize the Fed’s dual mandate and potentially usher in a stagflation scenario. His comments dampened market expectations of a rate cut in June, helping to partially stabilize the USD.
Still, traders continue to bet on a gradual easing cycle, with the CME FedWatch Tool indicating that markets are pricing in approximately 86 basis points of rate cuts by the end of 2025, starting in July.
Related topics:
