The EUR/USD pair rose after four days of losses, trading around 1.1630 during Asian business hours on Monday. The upside for the risk-sensitive pair may remain limited amid rising safe-haven demand, driven by rising uncertainty surrounding the issue between the US and Greenland.
According to Bloomberg, US President Donald Trump said on Saturday that he would impose tariffs on eight European countries that oppose his proposal to acquire Greenland. Trump has stated that a 10% tariff will be imposed on goods from EU members Denmark, Sweden, France, Germany, the Netherlands and Finland, as well as Britain and Norway, starting February 1, until the US is allowed to buy Greenland.
Meanwhile, European Union ambassadors reached a broad agreement on Sunday to step up efforts to dissuade Trump from implementing the tariffs, while also preparing retaliatory measures if the tariffs persist.
The US dollar could regain strength against its major counterparts, as strong US labor market data dampened expectations for further interest rate cuts by the Federal Reserve through June. Fed officials did not signal an urgent need to ease policy further until there is clearer evidence that inflation is moving sustainably toward the 2% target.
Meanwhile, Morgan Stanley analysts have revised their forecasts for 2026, and now expect one rate cut in June followed by another in September, compared to their previous forecast of cuts in January and April.
Frequently asked questions about the euro
The euro is the official currency of the twenty European Union countries that belong to the eurozone. It is the second most traded currency in the world after the US dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily trading volume of more than $2.2 trillion per day. The EUR/USD is the most widely traded currency pair in the world, accounting for a 30% discount on all transactions, followed by EUR/JPY (4%), EUR/GBP (3%), and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the euro area. The European Central Bank sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is to raise or lower interest rates. Relatively high interest rates – or the expectation of higher interest rates – usually benefit the euro and vice versa. The ECB’s Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by the heads of the eurozone’s national banks and the six permanent members, including the President of the European Central Bank, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is one of the important economic indicators for the euro. If inflation rises beyond expected, especially if it is above the ECB’s 2% target, this forces the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to their counterparts usually benefit the euro, because they make the region more attractive as a place for global investors to park their money.
Data releases measure the health of the economy and can affect the euro. Indicators such as GDP, manufacturing and services PMIs, employment, and consumer confidence surveys can all influence the direction of the single currency. A strong economy is good for the euro. Not only does it attract more foreign investment, it may encourage the European Central Bank to raise interest rates, which will directly strengthen the euro. Otherwise, if economic data is weak, the euro will likely fall. Economic data for the four largest Eurozone economies (Germany, France, Italy and Spain) are of particular interest, as they represent 75% of the Eurozone economy.
Another important data for the Euro is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a certain period. If a country produces highly desirable exports, its currency will gain value from the additional demand generated by foreign buyers seeking to purchase these goods. Therefore, a positive net trade balance strengthens the currency and vice versa for a negative balance.
