EUR/USD Outlook: Ukraine, Tariffs, ECB and NFP all in focus

Drama inside the Oval Office late in the day on Friday sent the EUR/USD to a new session low of 1.0360. That meant the EUR/USD would close lower for the second consecutive week, and completely lose its bullish momentum it had built in the previous couple of weeks amid optimism over a peace deal for Ukraine. But after Volodymyr Zelensky clashed with Donald Trump in an extraordinary exchange in the Oval Office, investors priced out the chances for a speedy agreement, with Trump telling the Ukrainian president to "make a deal or we're out" as he was told to leave the White House abruptly. The EUR/USD outlook is subject to increased uncertainty as we head towards a busy week ahead.

Source: TradingView.com

EUR/USD outlook: What will investors watch out for in the week ahead?

In the week ahead, Ukraine will remain in focus, as too will the rising risks of a trade war, with US tariffs set to take effect on Tuesday 4^th March. Any surprise delays in tariffs should be euro-positive, while a deal for Ukraine is now unlikely to reached in short order, undermining the EUR/USD outlook.

On the data front, we will have plenty of US macro pointers to provide volatility for the pair, with the ECB also in focus on Thursday.

ISM Services PMI

Wednesday, March 5

15:00 GMT

In recent weeks, we have seen some soft patch in US data, prompting rates traders to fully price in two quarter-point rate cuts by the Federal Reserve this year. At least two measures of consumer confidence surveys came in below forecasts while several housing market data such as new, existing and pending home sales have also painted a similarly bleak picture. The S&P Global flash services PMI, which could be a leading indicator for the ISM PMI, unexpectedly slipped into contraction territory. Let’s see if the closely-watch ISM PMI also underwhelms.

ECB rate decision

Thursday, March 6

13:15 GMT

The European Central Bank (ECB) is facing an internal debate ahead of its March meeting on where to stop its rate cut cycle. While dovish policymakers push for a 2% policy rate by summer, hawks question cuts below 2.5%. Despite this, a 25bp rate cut in March seems likely, bringing rates to 2.65% from 2.90% currently. With inflation still high and economic growth weak, the ECB must ensure a balanced approach, especially given the threat of US tariffs. It is also worth listening to what the ECB President Lagarde will say regarding future policy outlook at the ECB press conference.

US NFP report

Friday, March 7

13:30 GMT

Last month’s US non-farm payrolls report surprised investors with a solid showing on the wages front, with average hourly earnings showing a big 0.5% increase month on month. This was enough to push back rate cut expectations sharply, even if the headline jobs report disappointed – but that too was countered with big revisions to prior readings. The Fed will be watching this jobs reports closely along with inflation indicators as they decide when to lower rates.

Recently data releases have been soft. But one thing that will have worried the Fed was the UoM’s long-term inflation expectations creeping higher amid discussions of potential tariffs, stoking fears of stagflation.

On Friday, though, we saw the US core PCE, the Federal Reserve’s preferred inflation gauge, softened in January, providing some respite after recent data indicated rising price pressures. Core PCE increased by 0.3% month-over-month, matching December’s pace, while the annual rate eased to 2.6% from an upwardly revised 2.9% in December—the smallest yearly gain since 2021.

The figures suggest some relief on the inflation front. The Fed has emphasized the need for a meaningful cooling in inflation before resuming interest rate hikes, especially amid uncertainty over Donald Trump’s policies.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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