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Reading: Euro/US dollar drops to lowest level in two years due to worries about economic growth
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Gulf Press > Business > Forex > Euro/US dollar drops to lowest level in two years due to worries about economic growth
Forex

Euro/US dollar drops to lowest level in two years due to worries about economic growth

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Last updated: 2025/01/02 at 6:55 PM
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The EUR/USD currency pair saw a significant drop of one percent as Euro fears continue to simmer. European Manufacturing PMI results fell slightly below expectations in December, indicating a steeper contraction in the European economy. This has raised concerns about the European Central Bank (ECB) potentially accelerating rate cuts to support the economy, as petrol prices also reached two-year highs. Meanwhile, the Federal Reserve’s slower than expected rate cuts suggest a widening interest rate divergence between the two central banks, leading some analysts to predict the Euro could return to parity against the US Dollar within the next 12 months.

The EUR/USD price forecast shows a decline of 8.82% from the peak in September, with sellers struggling to break below 1.0200. Technical indicators like the Moving Average Convergence-Divergence (MACD) suggest further losses ahead, with the 50-day Exponential Moving Average (EMA) pushing bids lower towards 1.0550. However, a potential rebound could occur if bids manage to surpass this level and reach the 200-day EMA at 1.0760.

The Euro is the currency used in the 19 European Union countries that make up the Eurozone and accounts for 31% of all foreign exchange transactions globally. EUR/USD is the most traded currency pair, representing about 30% of all transactions. The European Central Bank (ECB) plays a key role in managing the Eurozone economy by setting interest rates and ensuring price stability. High interest rates typically benefit the Euro, while low rates can weaken it. Economic indicators such as inflation data and GDP releases can also influence the value of the Euro.

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important factor for the Euro. High inflation levels may prompt the ECB to raise interest rates, strengthening the Euro. Economic indicators like GDP, Manufacturing PMIs, and employment data can impact the Euro’s value, reflecting the health of the Eurozone economy. Trade Balance data, which measures a country’s exports against imports, also affects currency value, with a positive Trade Balance strengthening the Euro.

In conclusion, the Euro’s recent decline against the US Dollar is driven by concerns about the European economy and potential ECB rate cuts. The widening interest rate gap between the ECB and the Federal Reserve could lead to further losses for the Euro in the coming months. Traders and investors will need to remain vigilant of economic indicators and central bank policies to assess the future direction of the EUR/USD currency pair.

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News Room January 2, 2025
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