EUR/USD strengthens above 1.1400 as Trump delayed 50% tariffs on EU to July 9
- EUR/USD drifts higher to around 1.1415 in Monday’s early European session, adding 0.48% on the day.
- Trump delayed 50% tariffs on the EU to July 9, supporting the Euro.
- ECB’s Stournaras expected a rate cut in June and then a pause.
The EUR/USD pair gathers strength to near 1.1415 during the early European session on Monday. The Euro (EUR) edges higher against the Greenback as US President Donald Trump extends the deadline for 50% EU tariffs until July 9. Later on Monday, traders will focus on the speeches from the European Central Bank (ECB) President Christine Lagarde and German Bundesbank President Joachim Nagel.
Trump said on Sunday that he agreed to an extension on the 50% tariff deadline on the European Union (EU) until July 9 after a phone call with Commission President Ursula von der Leyen. This, in turn, could underpin the shared currency in the near term. Earlier in April, Trump imposed 20% tariffs on the EU as part of his sweeping “reciprocal tariffs,” before lowering the rate down to 10% for 90 days.
Across the pond, ECB Governing Council member Yannis Stournaras said that the central bank may hold borrowing costs steady for the time being after a likely quarter-point cut next month. Stournaras added that the ECB will continue to monitor a meeting-by-meeting and data-driven approach.
Nonetheless, US trade tariffs and related uncertainty could exert some selling pressure on the EUR. The markets have priced in nearly a 90% possibility of an ECB rate cut on June 5, but have priced in only one additional reduction over the rest of the year, according to Reuters.
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.