Euro Holds Firm as Trade Tensions and Fed Rate Cut Bets Pressure the US Dollar

The Euro (EUR) held steady against the US Dollar (USD) on Wednesday, supported by growing expectations of Federal Reserve (Fed) rate cuts and renewed US-China trade tensions.

At the time of writing, EUR/USD trades around 1.1621, easing slightly from a six-day high of 1.1645 earlier in the European session. The US Dollar Index (DXY) slipped 0.18% to 98.88, showing weakness in the Greenback across major currencies.

US-China Trade Tensions Drive Market Sentiment

Trade headlines continue to dominate global markets. The US-China trade conflict has intensified, with both nations ramping up tariffs and tightening export controls.

US Trade Representative Greer said on Wednesday that “China is exercising economic coercion” and described Beijing’s export restrictions as “a global supply chain power grab.” He added that the United States and its allies “will not accept China’s restrictions.”

Meanwhile, US Treasury Secretary Scott Bessent adopted a more measured tone, noting “we want to help China, not hurt it.” However, he defended President Trump’s use of emergency tariff powers, confirming that high-level talks will take place this week to address the ongoing trade rift.

The rising uncertainty has fueled caution among investors, weighing on the US Dollar and lending moderate support to the Euro.

Markets Expect Back-to-Back Fed Rate Cuts

Expectations for Federal Reserve interest rate cuts continue to rise. According to the CME FedWatch Tool, traders now price in nearly 100% odds of two 25-basis-point cuts in October and December.

Fed Governor Stephen Miran stated, “The labor market has clearly weakened,” adding that “two more cuts this year sound realistic.” He expects inflation to return to the Fed’s 2% target within 18 months if easing continues.

The dovish tone from policymakers has put additional pressure on the US Dollar, helping the EUR/USD pair maintain its recent recovery.

France Political Uncertainty in the Spotlight

In Europe, France remains a key focus as political tensions rise. Prime Minister Sébastien Lecornu’s decision to delay President Emmanuel Macron’s pension reform until after the 2027 election has temporarily calmed markets.

However, no-confidence votes scheduled for Thursday pose a major test for the French government. The results could influence Eurozone stability and investor confidence in the Euro (EUR).

EUR/USD Outlook

The Euro is likely to stay supported as the Fed’s dovish outlook and trade tensions limit US Dollar strength. Still, political risks in Europe and new trade headlines could trigger short-term volatility.

A breakout above 1.1650 may push the pair toward 1.1700, while a drop below 1.1600 could expose the next support near 1.1550.

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