EUR/USD rebounds as US-China tensions flare, focus shifts to Powell

The Euro (EUR) advances against the US Dollar (USD) on Tuesday, with EUR/USD erasing earlier losses as the Greenback weakens amid renewed US-China trade tensions and growing expectations of a more dovish Federal Reserve (Fed) stance. At the time of writing, EUR/USD trades near 1.1600, rebounding from intraday lows around 1.1542.

French politics continue to cloud the Euro’s broader outlook after the abrupt resignation and swift reappointment of Prime Minister Sébastien Lecornu, who faces an uphill battle to push through the 2026 budget bill.

Speaking at the National Assembly earlier Tuesday, Lecornu said, “We are living in a period of crisis. Parliament will have the last word on the budget. The government is suspending pension reform until the next presidential election.” In follow-up comments, Lecornu confirmed that “the suspension of pension reform will be paid for by belt-tightening measures,” underlining the administration’s fragile fiscal position.

European Central Bank (ECB) policymakers struck a cautiously optimistic tone on Tuesday. President Christine Lagarde said the ECB is “generally in a good place,” adding that risks to the economic outlook are “more balanced.” Lagarde noted that the central bank remains “well-positioned to respond to potential shocks” but cautioned that she “would never say the ECB is done cutting rates,” keeping the door open for further policy adjustments if conditions worsen. Separately, Gabriel Makhlouf, a member of the ECB’s Governing Council, said the European economy is “showing resilience” and that inflation is “where we want it to be.”

Market sentiment turned cautious after Beijing imposed new port fees on US-linked ships, mirroring Washington’s earlier move against Chinese vessels. The latest escalation follows US President Donald Trump’s announcement of 100% tariffs on all Chinese imports from November 1, after Beijing tightened rare-earth export controls.

On Tuesday, US Trade Representative Greer said the tariffs “could come sooner,” warning that Washington “has export controls it can impose if needed,” keeping investors on edge over a renewed trade standoff.

Attention now turns to Federal Reserve (Fed) Chair Jerome Powell’s remarks later on Tuesday for fresh guidance on the monetary policy outlook. Powell is scheduled to speak at the National Association for Business Economics (NABE) Annual Meeting in Philadelphia at 16:20 GMT. Earlier in the day, Fed Governor Michelle Bowman said she continues to expect “two more rate cuts before the end of the year.”