Dollar Falls Against Euro Despite Trade Deal With China

Interestingly, the euro rose against the US dollar, despite positive trading news from both Washington and Beijing. The EUR/USD currency pair climbed to 1,1125 during the North American trading day. This was largely due to disappointing inflation figures from the US, which caused the dollar to lose ground.

Inflation data puts pressure on dollar

April’s inflation figures were lower than analysts had expected. Headline annual inflation came in at 2,3%, compared to a forecast of 2,4%. Core inflation, which excludes food and energy, held steady at 2,8%, in line with forecasts. Monthly CPI rose just 0,2%, below the 0,3% expected. This subdued inflation fueled speculation about possible interest rate cuts by the Federal Reserve, which sent the US Dollar Index down to around 101,40.

Although the dollar initially rebounded after the announcement that the US and China were cutting their trade tariffs for a period of 90 days, the recovery was short-lived. In Geneva, it was agreed that the US would reduce its additional tariffs from 20% to 10% and China from 60% to 30%, although the fentanyl tariff remained unchanged. Nevertheless, the tariffs remained three to five times higher than before, which Austan Goolsbee of the Chicago Fed said would dampen economic growth and fuel price increases.

Concerns about the European economy

Despite the dollar's temporary weakness, concerns remain about the euro. The European Central Banks appears on track for a rate cut in June as eurozone inflation eases and may fall back to its 2% target by year-end. This scenario could reduce the euro’s longer-term attractiveness.

In addition, trade policy between the EU and the US is difficult. After the announcement of new reciprocal tariffs by President Trump little progress has been made. The European Commission has even launched a consultation round on possible countermeasures on US imports worth €95 billion, if there is no breakthrough.

Frequently Asked Questions

What impact did inflation figures have on the US Dollar Index?

The disappointing inflation figures led to a drop in the US Dollar Index to around 101,40 as the chances of a rate cut by the Federal Reserve increased.

How did currency markets react to the US-China trade news?

The dollar initially rose after the announcement of tariff cuts, but this recovery proved short-lived, partly due to continued high tariff levels.

What are the possible consequences of an ECB rate cut?

A rate cut could lead to a reduction in the attractiveness of the euro, especially if inflation in the eurozone continues to fall as expected. This could negatively affect the value of the euro in the longer term.