Behind the sharp rise of EUR/USD: the market is eagerly looking forward to a shift in tariff policy

The EUR/USD exchange rate experienced a significant rise on Tuesday, up 1.4%, successfully breaking through the 1.0600 level, with a single-day increase of 140 basis points. The strong move came on the back of a sell-off in the dollar and widespread bets that U.S. President Donald Trump will change his tariff threats. In the second half of the week, Europe and the United States will release key data, but in the middle of the week, trade war-related rhetoric dominated the market trend.

True to form, Trump has begun laying the groundwork for a shift in his tariff threat strategy. Hefty 25 percent tariffs on Canadian and Mexican imports officially took effect at midnight EST. However, despite a bout of risk aversion early in the U.S. trading session, currency markets quickly stabilised amid expectations that the Trump administration will once again reverse or delay its tariffs.

Key members of Trump's team, particularly Commerce Secretary Howard Lutnick, hinted in interviews with Fox News that a tariff shift this week could be in the works, with the president expected to announce the changes on Wednesday.

In mid-week trading, economic data released from Europe is relatively limited, and market participants are closely watching the European Central Bank (ECB) March interest rate decision on Thursday and the latest US non-farm payrolls (NFP) to be released on Friday. This week’s nonfarm payrolls data is likely to receive more attention as investors look for signs of economic weakness as consumers and businesses begin to feel the pinch from President Trump’s ongoing threat of a global trade war.

On Wednesday, the U.S. is to release ADP employment change data, as well as the ISM services purchasing managers' index (PMI) survey results. The market expects ADP employment to fall slightly from 183K to 140K, while the ISM Services PMI is expected to fall slightly from 52.8 to 52.6.

The ECB is widely expected to cut interest rates by another 25 basis points on Thursday, lowering its main reference rate to 2.65% from 2.9%, with a corresponding 25 basis point cut to the deposit facility rate from 2.75% to 2.5%. The ECB's move is aimed at countering the growing risk of recession and promoting diversified domestic economic growth across the European Union.