Euro steady ahead of US tariff clarity

The euro was little changed just below the $1.18 mark on Monday, holding near its strongest level since August 2021, as currency markets adopted a wait-and-see stance ahead of new developments in U.S. trade policy.

The common currency has been buoyed in recent weeks by growing confidence in the eurozone’s economic stabilization and the perception that major central banks, including the European Central Bank (ECB), are nearing the end of their easing cycles. However, fresh gains were capped by investor caution, with markets closely watching for clarity on the U.S. administration’s next moves.

President Donald Trump is expected to issue around a dozen formal letters to trading partners later today, signaling the next phase of his reciprocal tariff strategy. While details remain vague, uncertainty looms over whether European Union member states will be included in the initial round of targeted measures. The potential for new trade frictions between Washington and Brussels has weighed on risk sentiment and added to the euro’s near-term volatility.

In a related development, U.S. Commerce Secretary Howard Lutnick confirmed that the broader tariff package—originally slated for rollout on July 9—has been pushed back to August 1. While the delay provides temporary relief to importers and exporters alike, it also prolongs uncertainty for global trade flows and supply chain planning. European policymakers are especially sensitive to potential disruptions, given the region’s reliance on external trade and its still-fragile industrial recovery.

On the monetary policy front, expectations for further easing from the ECB have moderated. Markets are now pricing in just one additional rate cut for the remainder of 2025, following eight consecutive reductions since June 2024. ECB officials have recently adopted a more cautious tone, signaling that rates will likely be held steady at this month’s policy meeting.

With eurozone inflation now closely aligned with the central bank’s 2% target and economic indicators showing tentative signs of resilience, the ECB is shifting to a more data-dependent approach.

At the same time, the euro’s recent appreciation—up nearly 6% year-to-date—has sparked concern among some policymakers about its potential dampening effect on export competitiveness and imported inflation. The evolving dynamics between trade policy uncertainty, exchange rate movements, and monetary expectations are likely to shape the euro’s trajectory in the coming weeks, with investors closely monitoring upcoming comments from ECB President Christine Lagarde and key economic data releases.