EUR/USD holds steady above 1.1800 ahead of ECB’s Lagarde speech
- EUR/USD flat lines near 1.1815 in Thursday’s Asian session.
- The Fed cut its key interest rate by 0.25% at its September meeting on Wednesday.
- ECB President Christine Lagarde is scheduled to speak later on Thursday.
The EUR/USD pair holds steady around 1.1815 during the Asian trading hours on Thursday. The US Dollar (USD) trades flat against the Euro (EUR) following its plunge to a three-and-a-half-year low as traders assess the Federal Reserve’s (Fed) rhetoric on further interest rate cuts. Traders await the speech from the European Central Bank (ECB) Christine Lagarde later on Thursday.
The Fed reduced rates by 25 basis points (bps) at its September meeting on Wednesday, as widely expected, and signaled it will steadily lower borrowing costs for the rest of this year. Fed Chair Jerome Powell outlined the recent policy decision as a risk-management reduction in reaction to the weak labor market but stressed that the US central bank does not need to rush easing.
Powell said that the rate-path views are not commitments, adding that higher inflation is still a risk and the Fed is now in a "meeting-by-meeting situation" when it comes to further rate cuts. Less dovish than expected remarks from Powell could provide some support to the Greenback in the near term.
Across the pond, the latest inflation figures had supported the ECB’s decision to hold rates unchanged at the latest meeting. Rising expectations that the ECB is done cutting rates could underpin the shared currency against the USD. ECB Governing Council members Martins Kazaks and Gediminas Simkus said on Tuesday that interest rates don’t need to be cut further right now, though neither of them ruled out an eventual move. ECB Vice President Luis de Guindos said on Wednesday that the current interest rate is appropriate based on inflation developments and the transmission of monetary policy.
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.
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