The EUR/USD pair is trading stronger near 1.0860 in the early Asian session on Monday, amidst expectations of an interest rate cut by the US Federal Reserve in September. Recent US inflation figures showed a slight easing in June from the previous year, indicating a potential push towards an interest rate cut by the Fed. While the Fed is not expected to cut rates at its August meeting, analysts predict three rate cuts this year, starting in September. The markets have priced in a 90% possibility of a rate cut in September, followed by cuts in November and December. On the other hand, traders anticipate more rate cuts by the European Central Bank (ECB) in the near future, which could weigh on the Euro against the Greenback.
The Euro is the currency used by 20 European Union countries that make up the Eurozone and is the second most heavily traded currency in the world after the US Dollar. In 2022, the Euro accounted for 31% of all foreign exchange transactions with an average daily turnover of over $2.2 trillion. The EUR/USD pair is the most heavily traded currency pair in the world, followed by other pairs such as EUR/JPY, EUR/GBP, and EUR/AUD. The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone and plays a crucial role in setting interest rates and managing monetary policy to maintain price stability.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is a key indicator for the Euro. If inflation rises above the ECB’s 2% target, it may prompt the ECB to raise interest rates to control inflation. Economic indicators such as GDP, Manufacturing and Services PMIs, employment data, and consumer sentiment surveys also influence the direction of the Euro. Strong economic data is positive for the Euro as it attracts foreign investment and may lead to interest rate hikes by the ECB, strengthening the Euro. On the other hand, weak economic data can lead to a decline in the Euro.
Data releases regarding the health of the economy, including GDP, manufacturing and services PMIs, employment figures, and consumer sentiment surveys, can affect the value of the Euro. Positive economic data is beneficial for the Euro as it attracts foreign investment and may lead to interest rate hikes by the ECB. The Trade Balance indicator, which measures the difference between exports and imports, is another significant data release for the Euro. A positive net Trade Balance strengthens a currency as it indicates strong export demand, while a negative balance can weaken a currency. News related to the four largest economies in the Eurozone, namely Germany, France, Italy, and Spain, can have a significant impact on the Euro as they collectively account for 75% of the Eurozone’s economy.
