EUR\/USD rises to around 1.1625 during Monday’s early European session, breaking a four-day losing trend. The US Dollar weakens against the Euro after President Trump announced a 10% tariff on goods from eight European countries, including the UK and Germany. These tariffs start on February 1 and escalate to 25% in June if no agreement on Greenland is reached.<\/p>\n
Europe plans to respond with potential retaliation as European leaders meet to discuss the situation. Market concerns about a renewed trade conflict affect the US Dollar negatively, providing support to the Euro. Meanwhile, US financial markets remain closed for Martin Luther King Jr. Day. The stable US labor market and persistent inflation have traders expecting no changes at the upcoming Federal Reserve meeting, with a 95% chance of rates holding steady, according to the CME FedWatch tool.<\/p>\n
The Euro acts as the currency for the 20 countries in the Eurozone, accounting for 31% of global foreign exchange transactions in 2022. The European Central Bank (ECB) manages monetary policy and interest rates in the Eurozone. Economic data, such as inflation and trade balance, significantly influence the Euro’s value, reflecting economic health and investment attractiveness.<\/p>\n
With the EUR\/USD climbing above 1.1600, we see the market reacting more to political risk than to economic fundamentals. The surprise tariff threat against key European allies is creating a political risk premium on the US dollar, causing it to weaken. This short-term trend suggests that long euro positions could be favorable as Europe formulates its response.<\/p>\n
The Euro’s upward move is also supported by recent data showing Germany’s ZEW Economic Sentiment for January unexpectedly rose to 15.2, suggesting some underlying economic resilience. This tariff threat carries weight, as our analysis of 2025 trade data showed the U.S. goods trade deficit with just Germany and France alone was over $100 billion. The potential for strong retaliatory tariffs from a unified Europe could add further downward pressure on the dollar.<\/p>\n
Given the uncertainty surrounding Europe’s retaliation and the approaching February 1 deadline for the tariffs, we expect a significant increase in implied volatility for the EUR\/USD pair. When we look back at the market’s reaction to similar trade escalations in 2019, headline risk often led to sharp, unpredictable swings in both directions. Therefore, using options strategies like long straddles could be an effective way to trade the expected price move without betting on a specific direction.<\/p>\n
However, we must also factor in the upcoming Federal Reserve meeting on January 27-28, which could limit the dollar’s decline. The CME FedWatch tool shows a 95% probability that the Fed will hold interest rates steady, reflecting a stable U.S. labor market. A firm statement from the Fed reinforcing its data-dependent stance could quickly bring buyers back to the dollar, capping the euro’s gains near current levels.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" EUR\/USD climbs as U.S. Dollar weakens amid tariff tensions and holiday-quiet markets; Euro gains support.<\/p>\n","protected":false},"author":62,"featured_media":16966,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-39486","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts\/39486","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/comments?post=39486"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts\/39486\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/media\/16966"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/media?parent=39486"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/categories?post=39486"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/tags?post=39486"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}