EUR/USD dropped to about 1.1380 during North American trading hours, down from a monthly high of 1.1425 earlier. This decline happened as the US Dollar Index (DXY) bounced back to nearly 99.00 after earlier losses. The US Dollar’s future is unclear due to mixed messages about tariffs coming from Washington. President Trump has postponed a plan to impose 50% tariffs on the EU until July, after the EU agreed to speed up trade discussions and asked for more time to finalize a favorable deal.

Negotiations Between EU and US

Over the weekend, EU Commission President Ursula von der Leyen said she was ready to move forward with negotiations with the US. On Friday, Trump had announced plans for significant tariffs on EU imports, but a quick resolution eased tensions and helped both the equity markets and the Euro. German Economy Minister Katherina Reiche called for calm regarding tariffs. The US Dollar has been weak due to Trump’s tariff policies, threats to Fed Chair Jerome Powell, and a new tax and spending bill that could increase the national debt by $3.8 trillion. German Q1 GDP data showed stronger growth than expected, supporting the Euro. ECB officials remain hopeful that inflation could reach the 2% target, possibly leading to another interest rate cut. This week, EUR/USD’s movement could be affected by the upcoming US PCE data and EU HICP data. The pair has resistance at 1.1475 and support at 1.1215.

Impact of US Fiscal Policy

The US Dollar is the official currency of the United States and other countries. The Federal Reserve’s monetary policy significantly affects the Dollar’s value, with quantitative easing usually weakening it and quantitative tightening strengthening it. The recent drop of EUR/USD to around 1.1380 came after a brief rise to a one-month high of 1.1425, as the Dollar Index climbed back toward 99.00. This modest recovery was enough to push the Euro lower during North American trading. Although there was initial optimism from von der Leyen’s willingness to quicken trade talks, uncertainty remains. The White House’s shifting stance from imposing tariffs to delaying them has made short-term predictions tough. Trump’s delay on the proposed 50% tariff on EU goods extends the issue but doesn’t solve it. While the risk of immediate escalation has lessened, we cannot assume this will stay the same. Markets first reacted with relief. Reiche’s calls for measured discussion may have prevented a more drastic market reaction, especially in equity indices and currencies sensitive to risk. However, uncertainty remains, especially regarding the Dollar. Traders should consider US domestic factors as well. Washington’s fiscal policy, including the latest tax and spending bill, is expected to widen the deficit by $3.8 trillion, which weighs on Dollar sentiment. Fresh doubts about pressure on Chair Powell and the perceived loss of Fed independence continue to impact decisions. At the same time, macro data point to increasing growth in the Eurozone. Strong revised Q1 GDP figures from Germany supported the Euro against the Dollar. Market pricing now shows greater confidence in inflation nearing the European Central Bank’s 2% medium-term target. If this trend continues, the current easing cycle may pause or shift tone. Attention is now on inflation data from both the US and the EU. We expect the US PCE numbers to attract more short-term market focus because of their close connection to the Fed, but the EU’s HICP data will still be significant. Any surprises here could lead to quick adjustments in positions, particularly in short-term rate markets. Technical levels provide some guidelines in this reactive environment. The 1.1475 resistance is strong, previously tested during robust buying. The 1.1215 level will warrant close attention; if that breaks under pressure, we could see accelerated declines. Without new policy initiatives, price movements may remain technical and guided by headlines. There’s no clear direction yet among larger funds, and open interest in some derivatives remains low. This caution reflects the political noise from Washington and uncertainty from the ECB. Looking ahead, leverage and volatility metrics suggest caution. Weekly implied volatility is rising slightly. Positioning should be closely aligned with key event timelines around scheduled data releases and confirmed policy statements. Any intervention or hints of intervention can significantly impact the market. Constant reassessment is crucial. Create your live VT Markets account and start trading now.

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