The euro traded around $1.12, rebounding from one-month lows touched on May 12th, when the US and China announced a 90-day truce accompanied by reciprocal tariff reductions.
Euro trades around $1.12 on Friday
While the tariff cut initially fueled optimism that a broader de-escalation of the trade war could be within reach, that enthusiasm has since tempered, as markets now await clearer signals on whether the temporary agreement will translate into a more lasting trade settlement. This renewed uncertainty has shifted attention back to the underlying fragility in global growth, with mounting concerns over a potential slowdown in the US economy exerting fresh downward pressure on the dollar, offering some support to the common currency.
On the monetary policy front, expectations for further easing by the European Central Bank remain firmly in place, with markets widely anticipating at least a 25 basis point rate cut at the June policy meeting. Some ECB officials, however, signaled that the cycle of easing may be approaching its final stages. Governing Council member Martins Kazaks remarked that if the ECB's baseline inflation projection—showing consumer price growth returning to the 2% target later this year—materializes, the central bank could soon pause its rate-cutting campaign. His comments echoed a broader debate within the ECB over balancing the need to support the economy against the risk of overextending monetary stimulus.
Eurozone inflation held steady in April
In terms of data, Eurozone inflation held steady at 2.2% in April, while core inflation, which excludes volatile food and energy prices, accelerated to 2.7%, indicating lingering price pressures in services and some goods sectors. However, growth dynamics remain subdued, with first-quarter GDP growth revised down to 0.3% from an earlier estimate of 0.4%, reflecting weak industrial activity and soft external demand. Analysts noted that while the Eurozone has so far avoided outright recession, the bloc's recovery remains fragile and heavily reliant on resilient domestic consumption and supportive fiscal measures.
Looking ahead, the euro is likely to remain sensitive to incoming US economic data, particularly inflation and retail sales figures, which could influence the Fed's policy trajectory and, by extension, the dollar. Investors are also watching closely for any signs of progress—or setbacks—in US-China trade talks, as well as any adjustments to ECB forward guidance during upcoming speeches by key policymakers. In the background, geopolitical developments, including elections in key EU member states and tensions over energy security, may add further volatility to the currency markets.
