EUR/USD holds positive ground above 1.1550, all eyes on Fed rate decision
- EUR/USD strengthens to around 1.1560 in Wednesday’s Asian session.
- The Fed is expected to hold rates steady at its July meeting on Wednesday.
- Traders will take more cues from the Eurozone/Germany Q2 GDP reports, which are due later on Wednesday.
The EUR/USD pair gains ground to near 1.1560, snapping the four-day losing streak during the Asian trading hours on Wednesday. However, the potential upside for the major pair might be limited ahead of the crucial US events. Investors will closely monitor trade deals over the line before the August 1 deadline set by U.S. President Donald Trump. Also, the US Federal Reserve (Fed) interest rate decision will be in the spotlight later on Wednesday.
The United States (US) and the European Union (EU) are rushing to finalize the final details of a new trade agreement before US President Donald Trump's Friday deadline for reaching deals with countries other than China. French Prime Minister François Bayrou called the deal a "submission," while German Chancellor Friedrich Merz warned of "substantial damage" to the domestic economy. Tariff uncertainty might continue to undermine the shared currency in the near term.
The Fed is widely expected to hold interest rates steady for a fifth consecutive meeting at the end of its two-day monetary policy meeting on Wednesday. Analysts believe that the US central bank may opt to leave its options open until there’s more clarity about the direction of the economy and the right path for policy. Investors are already pricing in the odds of a rate cut in September at more than 60%, according to pricing in federal funds futures contracts.
The preliminary reading of Gross Domestic Product (GDP) for the second quarter (Q2) from the Eurozone and Germany will be released on Wednesday. If the reports show stronger-than-expected outcomes, this might help limit the EUR’s losses against the Greenback.
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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