- EUR/USD gains momentum to around 1.1690 in Thursday’s Asian session.
- WSJ reported Trump is considering an early pick for Fed chair.
- Investors brace for the final US Q1 GDP Growth Rate.
The EUR/USD pair extends its upside to near 1.1690 during the Asian trading hours on Thursday. The US Dollar (USD) weakens against the Euro (EUR) as investors are concerned about the future independence of the US Federal Reserve (Fed). The final US Q1 Gross Domestic Product (GDP) Growth Rate will be in the spotlight later on Thursday.
US President Donald Trump on Wednesday said on Wednesday that he is considering three or four potential replacements for Fed Chair Jerome Powell. According to the Wall Street Journal, Trump might consider former Fed Governor Kevin Warsh, National Economic Council Director Kevin Hassett, Treasury Secretary Scott Bessent. Other candidates include former World Bank President David Malpass and Fed Governor Christopher Waller.
This raises the question about the potential erosion of Fed independence and potentially weakened credibility, which undermine the Greenback and create a tailwind for the major pair.
Across the pond, the European Central Bank (ECB) policymakers have become concerned over the economic outlook due to the tariff policy announced by Trump and geopolitical risks. Earlier this week, ECB policymaker Francois Villeroy de Galhau said that further rate cuts are still possible despite present conditions. Dovish remarks from the ECB policymakers could weigh on the shared currency in the near term.
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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