The EUR/USD pair rose to around 1.1625, snapping a four-day losing streak during the early European session on Monday. The US Dollar (USD) is facing some selling pressure against the Euro (EUR) after US President Donald Trump threatened to escalate tariffs on eight European countries that opposed his plan to seize Greenland. US markets are closed on Monday as the country celebrates Martin Luther King Jr. Day.
Trump on Saturday announced a 10% tariff on goods from European countries, including Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and the United Kingdom, starting on February 1 and raising the tariffs to 25% in June until “an agreement is reached to fully and completely purchase Greenland.”
Europe is preparing to respond on Monday after Trump imposed additional tariffs on allies. European leaders are scheduled to hold an emergency meeting in the coming days to explore possible retaliation. Concerns about a renewed trade war and the long-term impact of Trump’s latest move are dragging the US dollar lower and acting as a tailwind for the major pair.
“While you might argue that tariffs threaten Europe, it is actually the dollar that is bearing the brunt of it, because I think markets are pricing in higher political risk premiums on the US dollar,” said Khun Goh, head of Asia research at ANZ Bank.
However, improving US labor market data last week dampened expectations for further interest rate cuts by the Fed through June. This, in turn, may help limit the dollar’s losses. Financial markets now expect about a 95% chance of no change in the benchmark rate at the Federal Open Market Committee meeting on January 27-28, 2026, according to the CME FedWatch tool.
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.
