The EUR/USD pair struggles to capitalize on the previous day’s goodish recovery move from the 1.1415-1.1410 area, or from the vicinity of the lowest level since July 2025, and edges lower during the Asian session on Tuesday. Spot prices currently trade just below the 1.1500 psychological mark, though the downside seems cushioned ahead of the key central bank event risks.
The US Federal Reserve (Fed) is scheduled to announce its policy decision at the end of a two-day meeting on Wednesday, which will be followed by the European Central Bank (ECB) meeting on Thursday. Policymakers have been grappling with the prospect of renewed inflationary pressures on the back of a sharp rise in Crude Oil prices since the outbreak of the war in Iran. Hence, the policy outlook will play a key role in determining the near-term trajectory for the EUR/USD pair.
In the meantime, bets that the Fed could delay cutting interest rates assist the US Dollar (USD) to attract some dip-buying and stall the overnight pullback from its highest level in May 2025. The shared currency, on the other hand, is undermined by worries that high Crude Oil prices could weigh on the Eurozone economic growth, given the region’s heavy reliance on imported energy. This, in turn, acts as a headwind for the EUR/USD pair and warrants caution for bullish traders.
Meanwhile, US President Donald Trump repeated his call to nations to help reopen shipping traffic in the Strait of Hormuz. This leads to a modest recovery in the global risk sentiment, which is evident from a positive tone around the equity markets and might keep a lid on any meaningful appreciation for the safe-haven Greenback. Hence, it will be prudent to wait for strong follow-through selling before positioning for the resumption of the EUR/USD pair’s downtrend.
Euro FAQs
The Euro is the currency for the 20 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.
