Insights 
VT 
EUR/USD holds steady above 1.1600 as trade tensions between the US and China intensify. President Trump announced plans for 100% tariffs on Chinese imports.
The Euro strengthens as political tensions in France ease with President Macron set to appoint a new prime minister. EUR/USD trades around 1.1620 during Asian hours, after a gain of nearly 0.5% in the previous session.
Trade War Concerns
US President Trump has stated he does not plan to meet China’s President Xi Jinping at the upcoming summit in South Korea. Meanwhile, China warned of retaliation if the US imposes 100% tariffs, raising concerns about the trade war’s impact on the US economy.
The US government shutdown delays federal paychecks originally expected on Friday, with the issue potentially continuing until Tuesday. The government observes the Columbus Day holiday, with no resolution to the shutdown imminent.
The EUR/USD pair gains support as the Euro benefits from political stability in France. The ECB meeting accounts indicated a consensus on the current policy stance and interest rates being adequate for handling potential economic shocks.
Inflation data, economic data, and the trade balance significantly influence the Euro’s value. Strong economic indicators and a positive trade balance are beneficial for the Euro, while poor data can cause declines.
Historical Context and Current Trends
Looking back, it’s interesting to see EUR/USD trading above 1.1600 amid concerns like Trump-era trade tariffs and government shutdowns. As of today, October 13, 2025, the landscape is entirely different, with the pair trading much lower around 1.0850. The era of unpredictable 100% tariff threats has been replaced by more structured, though still tense, trade dialogues between the US and China.
The US dollar weakness mentioned in the old analysis has not materialized in the long run; instead, we’ve seen sustained dollar strength. This is driven less by political chaos and more by a determined Federal Reserve, which has held the Fed funds rate at 5.0% to manage a persistent inflation rate that just last month registered at 3.1% year-over-year. The concerns from years past about government shutdowns seem minor compared to the current market focus on central bank policy.
Similarly, the Euro’s drivers have shifted from domestic French politics to the broader actions of the European Central Bank. The ECB is also grappling with inflation, which stood at 2.9% in the latest Eurozone HICP data, well above its historical 2% target. Consequently, the ECB’s deposit facility rate has been held firm at 4.25%, making monetary policy the primary focus for Euro valuation.
For derivative traders, this environment of high but potentially peaking interest rates suggests focusing on volatility. We believe buying options, such as straddles or strangles, ahead of key US and Eurozone inflation data announcements in the coming weeks could be a prudent strategy. Any deviation from expectations could cause a significant repricing of central bank paths and a sharp move in EUR/USD.
Given the substantial interest rate differential favouring the US dollar, the carry trade of being short EUR/USD remains attractive. However, with both central banks signalling a “higher for longer” stance, the pair may be confined to a range. This suggests we could consider strategies like selling out-of-the-money puts and calls to collect premium, betting that the pair will not break significant support or resistance levels in the near term.
