empty
14.05.2025 12:18 AM
The Euro Prepares for Retaliation

Man proposes, God disposes. After the White House imposed strict tariffs on America's Independence Day, there was much discussion about rising inflation and a slowing U.S. economy. However, instead of that, April's consumer prices rose a modest 0.2% month-over-month and 2.3% year-over-year. Both figures fell short of forecasts, and their downward trajectory pushes the Federal Reserve toward cutting the federal funds rate, especially given that the labor market remains strong.

Actual and Forecasted U.S. Inflation Figures

This image is no longer relevant

In his way, Donald Trump is right. When everything falls—from oil and gasoline prices to CPI and Treasury yields—the central bank should consider restarting the monetary easing cycle. Yet the Federal Reserve remains silent, counting on inflation to eventually pick up on its own. Tariffs are too high. Even the significant tariff reduction against China only brought the average rate down to 12%, compared to 2.4% back in 2024.

The Fed should act preemptively, but haste makes waste. The worst-case scenario for the central bank is cutting the federal funds rate only to see inflation spiral out of control. Unsurprisingly, the futures market has pushed back expectations of renewed monetary easing from July to September. Derivatives now price in a 56 basis-point cut, down from 75 bps before the U.S.–China trade deal.

Market Expectations for the Fed's Policy Rate

This image is no longer relevant

Interestingly, the projected rate cuts for the European Central Bank were revised downward following the 90-day postponement of mutual tariffs between Washington and Beijing. Investors now anticipate a 50-bps deposit rate cut instead of 60 bps.

The situation could change if the U.S. begins trade negotiations with the European Union. Donald Trump has called Europe "worse than China," claiming it treated the United States very unfairly. Now, the White House holds all the cards to punish the EU for such behavior. Brussels, in turn, has prepared a €95 billion retaliation package should the talks fail.

One of the most dangerous scenarios for the U.S. may be coordinated actions between Europe and China. However, as the saying goes, "charity begins at home." Beijing achieved its goal of lessening its constraints and is unlikely to step up for Brussels, especially since its earlier calls for joint action with the EU went unanswered. In other words, "Sort out your own problems."

This image is no longer relevant

The euro now hopes the market euphoria over the U.S.–China trade de-escalation has run its course. The good news has already been priced into U.S. stock indices and the dollar, and we'll see if that's the case.

Technically, on the daily chart of EUR/USD, there's a counterattack from the bulls following their rout the previous day. Buyers are finding the strength to push the major currency pair higher. However, as long as it trades below the pivot level of 1.123, the mood remains bearish. This keeps the door open for periodically adding to shorts initiated from 1.128.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Summary
Urgency
Analytic
Igor Kovalyov
Start trade
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

USD/JPY – Analysis and Forecast

The Japanese yen halted its intraday decline after Prime Minister Shigeru Ishiba downplayed the significance of recent media reports suggesting his resignation. News from Japan and the United States continues

Irina Yanina 13:23 2025-07-23 UTC+2

XAU/USD – Price Analysis and Forecast

News from the United States and Japan is significantly impacting the price dynamics of the precious metal. President Donald Trump announced the conclusion of a major trade deal with Japan

Irina Yanina 13:18 2025-07-23 UTC+2

AUD/JPY. Analysis and Forecast

On Wednesday during the Asian session, the AUD/JPY pair posted solid gains, extending a moderate rebound from the two-week low recorded the day before. However, spot prices have slightly pulled

Irina Yanina 11:53 2025-07-23 UTC+2

U.S.-Japan Deal Eases Market Tensions (Possible Decline in Ethereum and Litecoin)

An unexpected announcement from Donald Trump that the U.S. has struck a "major deal" with Japan gave investors a sense of relief, fueling demand for company stocks and reducing overall

Pati Gani 10:22 2025-07-23 UTC+2

The Market Faces a Cold Shower

If something seems too good to be true, it probably is. The S&P 500 remains stuck in indecision near its all-time high, showing little reaction to positive developments. Neither

Marek Petkovich 09:01 2025-07-23 UTC+2

What to Pay Attention to on July 23? A Breakdown of Fundamental Events for Beginners

No significant macroeconomic reports are scheduled for Wednesday. The event calendars for the Eurozone, Germany, and the United Kingdom are empty, while in the United States, a report

Paolo Greco 06:51 2025-07-23 UTC+2

GBP/USD Overview – July 23: The Powell–Trump Showdown: A Matter of Principle and Honor

On Tuesday, the GBP/USD currency pair maintained its upward bias, although it failed to post significant gains throughout the day. However, this is not an issue. The U.S. dollar

Paolo Greco 03:33 2025-07-23 UTC+2

EUR/USD Overview – July 23: Donald Trump Keeps Promising and Pressuring the EU

On Tuesday, the EUR/USD currency pair maintained the beginning of a new leg of its upward trend. A day earlier, the price had consolidated above the moving average line, which

Paolo Greco 03:33 2025-07-23 UTC+2

The EU Prepares an "Anti-Coercion Package"

As I mentioned in the previous review, the European Union has tools to respond to Donald Trump. European officials' reluctance to enter into a full-scale conflict is understandable. First

Chin Zhao 00:53 2025-07-23 UTC+2

Trump Is Squeezing the EU Dry

When Donald Trump comes to power, you can't help but feel glad you don't live in the United States of America. Of course, that's a joke—but as with any joke

Chin Zhao 00:53 2025-07-23 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.