EUR/USD is trading lower at around 1.0390, reflecting a 0.16% decline. The Euro is under pressure as concerns over rising tariffs affect market sentiment.

US President Trump announced the implementation date for new tariffs, increasing duties on goods from Canada, Mexico, and the European Union. This uncertainty could continue to weaken the Euro.

Fed officials indicated that interest rates might remain unchanged for now, as they seek evidence of reduced inflation pressures. Market participants are pricing in a 68% possibility of a rate cut in June.

The US PCE inflation report, expected later, is anticipated to greatly influence speculation regarding Fed policy. Lower inflation could potentially limit the USD’s gains against the Euro.

This downward move in the Euro suggests that traders remain cautious, particularly given concerns over tariffs. With the US now moving forward on additional duties, it’s no surprise that market participants are staying alert to the possible effects on trade flows. Investors dislike uncertainty, and until there’s more clarity on how European businesses will respond, selling pressure on the common currency could persist.

At the same time, we see the Federal Reserve taking a patient approach. Officials have made it clear they need more signs of cooling inflation before considering rate cuts, and traders appear to believe such a move is likely by June. However, a lot hinges on incoming data. The Personal Consumption Expenditures (PCE) inflation reading will be watched closely. If inflation picks up, it could dampen expectations for lower rates, making the US dollar more attractive to buyers. On the other hand, if the data shows a slowdown, those betting on a rate cut might feel more confident, limiting further strength for the greenback.

Tariffs and interest rates are pulling the market in opposite directions. On one side, trade tensions weigh on the Euro, but on the other, a weaker inflation reading could keep the US dollar from rallying too much. This creates a tough setting for traders trying to position for the weeks ahead.

Price action suggests that investors still prefer the dollar in the short term, particularly as policymakers in the US appear reluctant to rush any rate adjustments. However, economic data releases could shift sentiment quickly. Those focused on derivatives will likely be balancing short-term opportunities with longer-term rate expectations.

For now, it makes sense to remain mindful of upcoming economic events and any new statements from policymakers. The reaction to the inflation report could shape expectations for June’s Fed decision, bringing added volatility. Watching how traders respond over the next few sessions should offer key insights into possible market direction.