Euro Rebounds Sharply as Dollar Wobbles on Tariff Turmoil
The euro is regaining ground this week, with EUR/USD finding solid support near 1.1300 during Thursday’s European session. This comes as the US Dollar stalls in its recovery efforts amid fresh uncertainty over the direction of US-China trade negotiations, conflicting macro signals, and lingering concerns around the health of both the US and German economies. Meanwhile, risk sentiment across global markets is cautiously buoyant as major economies juggle geopolitical tensions and recessionary pressures.
EUR/USD Holds 1.1300 as Dollar Bulls Lose Steam
After a two-day corrective move, EUR/USD has stabilized around the 1.1300 mark, aided by renewed euro strength and a pullback in the US Dollar Index (DXY), which failed to sustain momentum above the psychologically important 100.00 level. The euro’s rebound comes despite increasing expectations that the European Central Bank (ECB) will move forward with a rate cut in June, as policymakers signal growing confidence that inflation is on track to return to the 2% target.
Bundesbank President Joachim Nagel added to the cautious optimism, reiterating on Wednesday that inflation is cooling but warned that Germany could enter a mild recession for a third consecutive year—largely due to external pressures such as US tariff policy.
US Tariff Uncertainty Clouds Dollar Outlook
The US Dollar has struggled to extend gains as trade policy uncertainty continues to dominate headlines. Treasury Secretary Scott Bessent confirmed that the current tariff rates—145% on Chinese goods and 125% on US exports—are “unsustainable,” opening the door to potential tariff cuts. Reports suggest the White House may reduce additional tariffs to the 50–65% range to restart stalled talks with Beijing.
President Trump, however, walked a fine line on Tuesday, saying negotiations with China are “going well” but warned that tariffs won’t return to zero. His administration plans to outline its revised tariff policy over the coming weeks, with market participants watching closely for signs of escalation or compromise.
The Federal Reserve’s Beige Book, released Wednesday, noted that businesses are beginning to pass higher input costs from tariffs onto consumers, raising fears of persistent inflation. Meanwhile, S&P Global’s PMI data for April revealed a slowdown in both the services and composite sectors—signaling that the economy is losing momentum even as inflation risks remain elevated.
Euro Benefits from Broader Trade Diplomacy and Resilient Sentiment
Beyond US dynamics, the euro found support from evolving EU-China relations. Beijing is reportedly preparing to lift sanctions on several Members of the European Parliament (MEPs), seeking to revive the long-stalled EU–China Comprehensive Agreement on Investment (CAI). German Finance Minister Joerg Kukies also expressed optimism over the prospects of a US-EU trade deal, suggesting that diplomacy remains a priority despite geopolitical headwinds.
Encouragingly, Germany’s Ifo Business Climate Index unexpectedly rose to 86.9 in April, suggesting that business sentiment is stabilizing even as uncertainty persists. According to Ifo’s head of surveys Klaus Wohlrabe, “The German economy is fighting off the recession,” offering a subtle counterweight to ECB dovishness.
EUR/GBP Also Gains on Euro Strength, BoE Dovish Bets
The euro’s resilience extended to the EUR/GBP cross, which climbed above 0.8550 on Thursday. Optimism over a potential US-China breakthrough buoyed euro demand, while the British pound faced pressure amid growing expectations of a Bank of England (BoE) rate cut in May. Markets now price in an 82% chance of a rate cut, as Trump’s trade posture and global inflation risks feed into the BoE’s calculus.
Technical Outlook: EUR/USD Maintains Bullish Structure
From a technical perspective, EUR/USD remains in a bullish trend, having broken above its September 2023 high of 1.1215 earlier this month. The 20-week Exponential Moving Average (EMA) near 1.0850 continues to trend higher, supporting the bullish bias. The 14-week Relative Strength Index (RSI) is hovering in overbought territory above 70, signaling strong momentum—but also flagging potential for short-term consolidation.
On the upside, resistance is seen at the psychological level of 1.1600. Support lies at 1.1276 (July 2023 high), followed by 1.1215.
Summary
EUR/USD is showing signs of renewed strength as the US Dollar falters on tariff uncertainty, cooling business activity, and a muddled inflation outlook. While ECB rate cut bets linger, the euro is being propped up by improving German sentiment and diplomatic progress on trade fronts. For the greenback, the next few weeks could be pivotal—hinging on Trump’s tariff decisions and incoming economic data. With risk sentiment in flux, FX traders will be closely watching every headline from Washington, Brussels, and Beijing for direction.
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