EUR/USD attracts some buyers above 1.1050, FOMC Minutes in focus
- EUR/USD gains traction to around 1.1065 in Wednesday’s early European session.
- Trump’s new reciprocal tariffs took effect on Wednesday.
- ECB is expected to cut rates in April and June as tariffs threaten recession.
The EUR/USD pair rises to near 1.1065 during the early European session on Wednesday. The US Dollar (USD) weakens against the Euro (EUR) after US President Donald Trump's tariff policy takes effect. Later on Wednesday, traders will take more cues from the release of the FOMC Minutes. Also, the Federal Reserve's (Fed) Thomas Barkin is set to speak on the same day.
A new round of steep tariffs imposed by Trump took effect on Wednesday morning on products imported from scores of countries around the world. Overall, imports from 86 nations face tariff increases ranging from 11% to 84%. The escalating global trade tensions and fears of a recession triggered by Trump’s tariff policy drag the USD lower and create a tailwind for EUR/USD.
Across the pond, the rising bets that the European Central Bank (ECB) will cut borrowing costs next week and again in June as Donald Trump’s sweeping tariffs risk pushing the bloc into recession might cap the upside for the shared currency. Investors are now pricing in a nearly 90% odds of a quarter-point cut in interest rates at the next ECB rate-setting meeting on April 17, according to Bloomberg data, up from 70% before.
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.