Tariffs, Rate Cuts, and a Rally: EURUSD Climbs Amid Fragile Optimism

As global markets digest another wave of monetary and geopolitical developments, the eurozone is firmly in the spotlight. The European Central Bank has delivered a widely expected rate cut to 2.25%, aiming to get ahead of weakening growth and rising trade tensions, especially those stemming from Washington’s latest tariff measures. Meanwhile, efforts are underway to prevent further transatlantic escalation, with Donald Trump and Giorgia Meloni voicing optimism about a potential EU-US trade deal. Against this backdrop of easing inflation, policy shifts, and uncertain diplomacy, EURUSD has extended its rally, although technical signals suggest that caution may be warranted in the near term.

ECB Slashes Rates as Tariff Turmoil Threatens Eurozone Outlook

The European Central Bank (ECB) has cut its key interest rate from 2.5% to 2.25%, marking its seventh rate cut since mid-2024. The move comes as inflation across the eurozone continues to ease, with core and services inflation hitting their lowest levels since early 2022.

At the same time, escalating global trade tensions—particularly new US tariffs under President Trump—have raised recession fears, prompting the ECB to act preemptively. The central bank acknowledged weakening growth prospects and increasing uncertainty for households and businesses.

Markets now expect two or three more rate cuts before year-end, while analysts note that the eurozone’s economic resilience may be tested further if trade disruptions deepen. ECB President Christine Lagarde said the rate cut was unanimously supported and emphasized that the idea of a “neutral” interest rate no longer applies in today’s volatile environment.

Trump and Meloni Eye Trade Truce Before Tariffs Return

Donald Trump and Italian Prime Minister Giorgia Meloni expressed confidence on Thursday that a new EU-US trade deal could be reached before suspended tariffs on European goods are reinstated. Speaking during Meloni’s visit to Washington, the first by a European leader since Trump’s tariff announcement, both leaders struck a conciliatory tone, emphasizing the need for compromise and mutual respect. Trump claimed the EU was eager to make a deal, while Meloni said she believed a fair agreement was within reach.

Though Meloni cannot negotiate on behalf of the EU, she extended an invitation for formal talks with Italy, and Trump agreed to a future visit. Meanwhile, existing US tariffs on steel, aluminum, cars, and various goods remain in place, with more under consideration.

Lagarde Flags Tariffs as Growth Risk as ECB Cuts Rates to 2.25%

ECB President Christine Lagarde said the bank’s latest rate cut to 2.25% reflects growing confidence in falling inflation and concern over rising trade tensions. She described tariffs as a negative shock to eurozone demand, citing risks to exports, investment, and consumer spending. The ECB dropped its “restrictive” policy language and stressed a flexible, data-driven approach amid growing uncertainty. Lagarde also highlighted resilience in the labor market and recent fiscal stimulus as supportive factors for growth but warned the outlook remains fragile.

EURUSD Eyes Higher Ground but Caution Creeps In

Since forming a low at 1.01768 on January 13, EURUSD has climbed more than 11%, supported by a mix of favorable technical signals and fundamental drivers.

The initial trend shift was signaled by a failure swing setup, indicating a change in market structure. A higher low at 1.02760, followed by a decisive move above 1.04418, confirmed the start of an upward trend.

Momentum gained traction as the pair moved above both the 20- and 50-period Exponential Moving Averages, creating a “Golden Cross” a commonly recognized signal for trend continuation.

Technical indicators remain supportive. The Momentum Oscillator has consistently stayed above the 100 level, suggesting strong upside pressure, while the Relative Strength Index (RSI) continues to trade above 50, pointing to ongoing buying interest.

That said, a developing negative divergence between price action and the Momentum Oscillator may hint at a short-term pullback ahead.

If bullish conditions persist, attention will likely shift toward the next key resistance zones at 1.14726, 1.15766, and ultimately 1.20086, which could serve as upside targets in the event of continued momentum.

Conversely, should market sentiment turn and sellers regain control, the focus would shift to potential support levels at 1.11446, 1.09465, and 1.06718, each representing areas where downside pressure could pause or reverse.

Conclusion

In conclusion, the eurozone finds itself navigating a complex mix of easing inflation, fragile growth, and rising geopolitical risk. The ECB’s rate cut underscores both confidence in disinflation and concern over trade-related headwinds. Diplomatic efforts, such as those between Trump and Meloni, suggest a willingness to de-escalate tensions, but key issues remain unresolved. For EURUSD, bullish momentum remains intact, yet technical divergence signals the potential for near-term volatility. Traders will be watching both the data and the diplomacy closely, as developments on either front could shape the next moves in policy and price.