The euro edged higher toward $1.14, its strongest level in about a month, buoyed by easing trade tensions after U.S. President Trump announced a delay in the planned 50% tariff on EU imports.
Euro hits one-month high
The currency gained ground as investor anxiety over a transatlantic trade war briefly subsided. Just days earlier, Trump had declared that negotiations with the European Union were “going nowhere” and proposed imposing the steep tariff starting June 1, sparking concerns over retaliatory measures and further economic strain on the already fragile Eurozone economy.
However, following a conciliatory phone call with European Commission President Ursula von der Leyen, Trump announced an extension of trade talks until July 9. Under the reciprocal tariff framework unveiled in April, the EU currently faces a 20% levy on key exports, though this has been temporarily reduced to 10% during the extended negotiation period. The move was welcomed by markets as a sign of potential de-escalation, providing short-term relief to European exporters and bolstering the euro’s appeal.
Despite the bounce in the euro, the broader economic backdrop in the Eurozone remains underwhelming. The European Commission recently downgraded its 2024 GDP growth forecast to just 0.9%, citing persistent weakness in household consumption, lackluster investment, and global uncertainty.
PMI showed negative trends
Adding to the gloom, flash Purchasing Managers’ Index (PMI) readings for May showed that private sector activity unexpectedly contracted again in both the Eurozone and its largest economy, Germany. Notably, the services sector—which had shown resilience earlier in the year—registered a sharper decline, reflecting subdued domestic demand and ongoing cost pressures.
On the monetary policy front, the European Central Bank is widely expected to deliver an interest rate cut at its upcoming June meeting, marking a potential turning point in its tightening cycle. While inflation has moderated, it remains above the ECB’s 2% target, complicating the decision-making process. Still, with growth momentum faltering and external risks mounting, many economists believe the central bank will move preemptively to support demand. The euro’s recent strength, therefore, may prove temporary, as expectations for looser policy weigh against the currency’s upside in the medium term.
