EUR/USD remains below 1.0500, traders await release of key US economic indicators
- EUR/USD holds its ground ahead of US economic data releases including US PCE Price Index and quarterly GDP Annualized.
- The Euro faced challenges as US President-elect Donald Trump's renewed tariff threats have dampened market sentiment.
- The ECB is widely anticipated to implement a 25 basis point rate cut in December.
EUR/USD maintains its position after the recent losses registered in the previous session, trading around 1.0480 during the Asian hours on Wednesday. Traders await the US Personal Consumption Expenditure (PCE) Price Index and quarterly Gross Domestic Product Annualized scheduled to be released later in the North American session.
However, the US Dollar (USD) faces pressure amid bond market optimism following President-elect Donald Trump's decision to nominate fund manager Scott Bessent, a seasoned Wall Street veteran and fiscal conservative, as US Treasury Secretary.
The latest Federal Open Market Committee (FOMC) Meeting Minutes from the November 7 policy session showed that policymakers are taking a cautious approach to cutting interest rates. While the Federal Reserve's (Fed) key officials generally agreed that downside risks related to employment and inflation have diminished, they indicated that rate cuts are unlikely to speed up unless significant weaknesses emerge in the job market and inflationary pressures decline.
US President-elect Donald Trump is expected to appoint Jamieson Greer as the US Trade Representative, Bloomberg reported on Tuesday. Greer’s nomination highlights the central role of tariffs in Trump’s economic strategy.
US President-elect Donald Trump's renewed tariff threats on China, Mexico, and Canada. These developments have dampened market sentiment, adding downward pressure on European economies and weighing on the risk-sensitive Euro. As a result, the EUR/USD pair struggles to gain traction amid a challenging external environment.
In the Eurozone, markets have fully priced in a 25-basis-point (bps) rate cut by the European Central Bank (ECB) in December, with the likelihood of a larger 50 bps cut climbing to 58%. This reflects increasing market concerns about the region's economic outlook.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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