Euro rises above $1.14 amid trade talks, ECB signals shift

The euro rebounded above the $1.14 level on Monday, edging closer to the six-week high of $1.149 reached on June 5, as investors tracked progress in US-China trade talks and looked ahead to a series of speeches from European Central Bank officials for further clarity on the ECB’s monetary policy trajectory.

Euro rises above $1.14 amid trade talks, ECB signals shift

The common currency found support amid a broad-based pullback in the US dollar and renewed optimism that diplomatic efforts between Washington and Beijing might yield further de-escalation in trade tensions. Top US and Chinese negotiators are meeting in London today, building on the momentum from last month’s preliminary agreement reached in Geneva. The latest round of discussions is expected to focus on high-stakes sectors including rare-earth mineral trade, semiconductor technology, and export controls. While concrete outcomes remain uncertain, the talks are seen as a positive signal that both sides are seeking to stabilize economic relations, which has helped buoy market sentiment in Europe and beyond. On the monetary front, the ECB delivered a widely expected 25 basis point rate cut last week, lowering key interest rates to their lowest levels since November 2022. The move followed a string of softer inflation prints across the euro area, particularly the May CPI reading, which fell below the ECB’s 2% target for the first time since late 2023. The central bank also trimmed its inflation projections for 2025 and 2026, citing declining energy prices, easing wage pressures, and a stronger euro as contributing factors.

Policymakers are cautious

However, policymakers struck a more cautious tone in the post-meeting communication, with ECB President Christine Lagarde emphasizing a "meeting-by-meeting" approach and warning against assuming a prolonged easing cycle. Some hawkish members of the Governing Council have even suggested that further cuts may not be necessary if inflation stabilizes near target and economic growth holds up. Market participants will be closely analyzing upcoming remarks from key ECB voices—including Chief Economist Philip Lane and Bundesbank President Joachim Nagel—for any clues on whether the July or September meetings could bring additional policy moves. In the broader macro environment, investor appetite for the euro was also underpinned by signs of relative resilience in the eurozone labor market and business sentiment indicators, which have shown gradual improvement in recent weeks. However, persistent geopolitical risks, particularly around global trade and energy security, continue to cloud the outlook. For now, the euro’s near-term trajectory will likely hinge on both central bank guidance and the outcome of US inflation data later this week, which could influence expectations for Federal Reserve policy and the transatlantic interest rate differential.