- EUR/USD softens to around 1.1465 in Thursday’s Asian session.
- The Fed held rates again, expecting two rate cuts by year-end.
- Traders will take more cues from the speeches from the ECB policymakers.
The EUR/USD pair extends the decline to near 1.1465 during the Asian session on Thursday. The Euro (EUR) weakens against the Greenback amid the risk-off mood due to rising geopolitical tensions in the Middle East. Traders await the speeches from the European Central Bank (ECB) policymakers later on Thursday for fresh impetus, including Christine Lagarde, Joachim Nagel and Luis de Guindos.
The US Federal Reserve (Fed) kept its key borrowing rate targeted in a range between 4.25%-4.50% at its June meeting on Wednesday, where it has been since December. The US central bank signaled a slower pace of cuts in the future amid concern that US President Donald Trump’s tariffs could push up consumer prices. The Federal Open Market Committee (FOMC) expects to deliver two rate cuts later this year, according to the “dot plot.”
Bloomberg reported early Thursday that US officials are preparing for a possible strike on Iran in the coming days. Some of the people pointed to potential plans for a weekend strike. The fear that direct US involvement would widen the conflict underpins the safe-haven currency like the US Dollar (USD) and acts as a headwind for the major pair.
On the other hand, the hawkish remarks from the European Central Bank (ECB) policymakers might help limit the shared currency’s losses. ECB President Christine Lagarde said that rate reductions are coming to an end as the central bank is now “in a good position” to deal with prevailing uncertainties.
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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