The EUR/USD pair recovers some lost ground around 1.1645, snapping the three-day losing streak during the Asian trading hours on Thursday. An ongoing US government shutdown undermines the US Dollar (USD) against the Euro (EUR). The US Federal Reserve (Fed) Chair Jerome Powell is set to speak later on Thursday.
It has been nine days since the US government shutdown began on October 1, owing to a failure by Congress to agree on a new budget by the September 30 deadline. The Bureau of Labor Statistics and the Bureau of Economic Analysis have suspended data collecting and reporting, which complicates the Fed’s decision-making on interest rates and businesses’ ability to make informed decisions. This could drag the Greenback lower and act as a tailwind for the major pair in the near term.
Minutes from the Fed’s September meeting released on Wednesday showed that a majority of policymakers supported the September rate cut and signaled further reduction later this year. Nonetheless, some Fed officials favored a more cautious approach, citing concerns about inflation.
On the other hand, the political crisis in France after the shock resignation of France’s Prime Minister Sebastien Lecornu and his government could undermine the shared currency. France’s President Emmanuel Macron is under pressure to call snap parliamentary elections or resign as former allies join his opponents in demanding he act to end a political turmoil in the Eurozone’s second-largest economy.
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.