Euro Steady Ahead of Inflation Data

The euro held just below $1.18 as investors awaited Friday’s inflation data for insight into how euro strength could affect price pressures and the European Central Bank’s policy stance. Money markets currently price in only a 30% chance of an ECB rate cut by December, reflecting expectations that the central bank will remain patient amid easing wage growth and subdued inflation. Speaking to a European Parliament committee on Thursday, ECB President Christine Lagarde said headline inflation is expected to converge to the 2% target over the medium term, with food inflation, key to consumer perception, projected just above 2% later this year. She also noted that the ECB will monitor currency movements but will not intervene directly in foreign exchange markets. Investors also weighed US President Donald Trump’s new 10% global tariffs and a third round of US-Iran nuclear talks in Geneva, amid rising Middle East tensions.

The euro hovered just below the $1.18 level as US President Donald Trump’s new 10% global tariff took effect, adding to trade tensions and dampening investor sentiment. The measure was implemented through an executive order signed last Friday, only hours after the US Supreme Court blocked several of the administration’s earlier import duties. According to Bloomberg, White House officials are drafting a formal order that could lift the tariff rate to 15%. Trump also warned that countries seeking to “play games” with existing trade agreements risk facing higher duties, following the European Parliament’s decision to pause progress on a trade deal with Washington until greater policy clarity emerges from US authorities. Investors are also turning their attention to upcoming inflation readings from Germany, France, and Spain for clearer signals on how the euro’s strength could influence price pressures and shape the policy path of the European Central Bank.

The euro extended its advance beyond $1.18, rebounding from last week’s one-month lows after the European Parliament paused the ratification process of the US-EU trade deal agreed with US President Donald Trump last July in Scotland. The move followed Trump’s announcement that he plans to raise a temporary import tariff from 10% to 15%, after the Supreme Court blocked his broader tariff measures. Uncertainty lingered over whether the new 15% rate would take effect imminently in the UK or EU, despite assurances from US Trade Representative Jamieson Greer that existing agreements with around 20 countries remain unchanged. The single currency was further supported by stronger-than-expected German business confidence, which climbed to a six-month high. Investors now await inflation data from Germany, France, and Spain for clearer signals on how euro strength may affect price pressures and the outlook for the European Central Bank.