The EUR/USD pair is trading near 1.0895 during the early Asian session on Monday, with a slight increase of 0.12% on the day. The US Dollar’s decline has provided some support for the major pair, as investors look ahead to key economic data releases. The German Retail Sales for May and the US Chicago Fed National Activity Index for June are set to be released later in the day. The rising expectations of a Federal Reserve (Fed) rate cut in September and concerns about the US labor market have put pressure on the Greenback. The CME FedWatch Tool shows that financial markets are pricing in a high probability of a rate cut in September, with little chance of a move at the July meeting. New York Federal Reserve President John Williams recently stated that an interest rate cut could be warranted in the coming months.
On the Euro front, the European Central Bank (ECB) left interest rates unchanged at its last meeting, with President Christine Lagarde refraining from committing to a specific rate-cut path. Lagarde acknowledged that Eurozone inflation is on a “disinflationary track,” but stressed the need to maintain high rates. The market has priced in a 65% probability of a rate cut in September, slightly down from 73% before the ECB decision. The data-driven approach from the ECB is expected to support the Euro in the short term, as investors await further economic indicators.
The Euro is the currency used in the 20 European Union countries that belong to the Eurozone and is the second most traded currency in the world after the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion. The most heavily traded currency pair is EUR/USD, followed by others 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 is responsible for setting interest rates and managing monetary policy.
The ECB’s primary mandate is to maintain price stability, which involves controlling inflation or stimulating growth through interest rate adjustments. High interest rates or the expectation of higher rates typically benefit the Euro, while lower rates may weaken the currency. Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is a key indicator influencing the ECB’s monetary policy decisions. Strong economic indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can impact the Euro’s value positively, attracting foreign investment and potentially leading to rate hikes.
The Trade Balance is another essential data release for the Euro, measuring the difference between a country’s exports and imports. A positive net Trade Balance strengthens a currency by increasing demand for exports, while a negative balance can weaken it. Significant economic data releases for the Eurozone, particularly for the largest economies like Germany, France, Italy, and Spain, play a crucial role in determining the Euro’s performance in the global market. Overall, economic indicators, monetary policy decisions, and external factors like trade balance affect the strength of the Euro against other major currencies.
