EUR/USD depreciates after three days of losses, trading around 1.1550 during the Asian hours on Monday. The pair loses ground as the US Dollar (USD) receives support after Bloomberg reported the record-breaking US government shutdown is nearing an end. A group of centrist Senate Democrats agreed to support a deal to reopen the government and fund some departments and agencies for the next year.
The agreement would ensure federal employees receive back pay and allow states to resume delayed federal transfers. It would fund some departments through January 30, while others would receive full-year allocations.
US Treasury Secretary Scott Bessent said on Monday that the US federal shutdown impact getting worse for the economy. Making substantial progress on inflation and expecting prices to come down over the coming months, Bessent added.
The US Dollar weakened after consumer sentiment fell to a three-and-a-half-year low amid growing concerns over the government shutdown. The University of Michigan reported on Friday that its Consumer Sentiment Index dropped to 50.3 in November, the lowest since June 2022, down from 53.6 in October and below expectations of 53.2.
The EUR/USD pair may regain its ground as the Euro (EUR) could receive support from the diverging policy outlooks between the European Central Bank (ECB) and the US Federal Reserve (Fed). The ECB is expected to keep rates unchanged for some time, with money markets now pricing only a 45% chance of a rate cut by September 2026, down sharply from over 80% in October.
European Central Bank (ECB) policymaker Francois Villeroy de Galhau emphasized the need to keep policy options open, while Governing Council member Joachim Nagel called for vigilance on inflation. Meanwhile, Vice President Luis de Guindos said any drop in inflation below 2% would likely be temporary.
Euro FAQs
The Euro is the currency for the 20 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.