20 Mar 2025

EUR/USD has declined to approximately 1.0860 as European Central Bank (ECB) President Christine Lagarde cautioned that a trade war led by US President Trump could hinder economic growth in the Eurozone. The Federal Reserve maintained its borrowing rates and reaffirmed its forecast of two interest rate cuts in 2025 during its meeting on Wednesday. The Fed anticipates that Trump's policies will negatively impact US economic growth and intensify inflationary pressures.

On Thursday, during European trading hours, the EUR/USD pair fell to around 1.0860. The Euro (EUR) is under pressure following Lagarde's warning about the economic risks facing the Eurozone due to potential US tariffs.

Lagarde addressed the Committee on Economic and Monetary Affairs of the European Parliament, stating that the proposed 25% tariffs on European imports by President Trump could reduce Eurozone growth by approximately 0.3% in the first year, according to ECB analysis. The report also indicates that retaliatory tariffs from Europe could exacerbate this decline to about 0.5%.

Concerns regarding sluggish economic growth in the Eurozone may diminish the attractiveness of the Euro (EUR), potentially prompting the ECB to further lower interest rates. Nevertheless, Germany's shift away from over a decade of fiscal conservatism, aimed at enhancing domestic consumption and defense spending, could mitigate the adverse effects of the trade conflict.

Regarding inflation, Lagarde projected that retaliatory actions from the European Union (EU) and a depreciating Euro could increase inflation by around 0.5%. However, she believes this effect will be temporary, as reduced economic activity is expected to alleviate inflationary pressures in the medium term.

Daily market movers summary: EUR/USD declines as the US Dollar strengthens  
The EUR/USD pair has fallen below the 1.0900 mark as the US Dollar (USD) gains strength, with investors assessing the unclear economic outlook in the United States under President Donald Trump's administration, as anticipated by the Federal Reserve (Fed). The US Dollar Index (DXY), which measures the Greenback's performance against six major currencies, approached 103.65.  
On Wednesday, the Fed maintained its key borrowing rates within the range of 4.25%-4.50%, as expected for the second consecutive time, and reiterated its guidance of two anticipated interest rate cuts this year, as outlined in the December policy meeting. The Fed indicated that it is not in a hurry to adjust monetary policy due to the "unusually elevated" uncertainty surrounding the President's policies. Fed Chair Jerome Powell stated during a press conference, "We are not going to be in any hurry to move on rate cuts," noting that "tariffs tend to bring growth down and inflation up."  
The Fed has updated its forecast for the core Personal Consumption Expenditures Price Index (PCE) for this year to 2.8%, an increase from the previously projected 2.5% in December. Additionally, the central bank has lowered its Gross Domestic Product (GDP) growth forecast for this year to 1.7%, down from the earlier estimate of 2.1%, although it remains confident in the robustness of labor market conditions.  
In contrast to the Fed's cautious stance, President Trump asserted that the central bank should have already reduced interest rates, as the effects of tariffs are beginning to permeate the economy. In a post on Truth Social following the Fed's policy announcement, Trump remarked, "The Fed would be much better off cutting rates as US tariffs start to transition (ease!) their way into the economy. Do the right thing." He has consistently advocated for lower interest rates to stimulate economic growth.

Technical Analysis: EUR/USD Retraces to Approximately 1.0860

The EUR/USD currency pair has declined to approximately 1.0860 after failing to maintain the significant level of 1.0900 on Thursday. Nevertheless, the long-term perspective for this major currency pair remains optimistic, as it continues to trade above the 200-day Exponential Moving Average (EMA), which is situated around 1.0660.

The pair gained strength following a notable breakout above the December 6 high of 1.0630 on March 5.

The 14-day Relative Strength Index (RSI) has eased after reaching overbought conditions near 75.00, indicating a moderation in bullish momentum, although the upward bias remains intact.

On the downside, the December 6 high of 1.0630 is expected to serve as a significant support level for the pair. In contrast, the psychological threshold of 1.1000 will represent a crucial resistance point for Euro bulls.