EUR/USD weakens below 1.1750 as Eurozone Consumer Confidence and Fedspeak loom
- EUR/USD extends the decline to around 1.1730 in Monday’s early European session.
- The Fed cut interest rates last week but signaled gradual easing in the future, supporting the US Dollar.
- ECB’s de Guindos said central bank might not have completed a series of rate cuts.
The EUR/USD pair trades in negative territory for the fourth consecutive day around 1.1730 during the early European session on Monday. The major pair edges lower amid the rebound in the US Dollar (USD) after the Federal Reserve (Fed) resumed its easing cycle last week. The Eurozone Consumer Confidence report and Fedspeak will be the highlights later on Monday.
The Fed delivered an expected rate cut last week but indicated no rush to lower borrowing costs quickly in the coming months. Fed Chair Jerome Powell stated during the press conference that the decision was a "risk management cut" intended to address a weakening labor market while inflation remains somewhat elevated. Powell’s remarks suggested a less dovish stance than some investors anticipated. This, in turn, provides some support to the Greenback and acts as a headwind for the major pair.
Fed officials, including Chair Jerome Powell, are scheduled to speak later this week. Traders will closely monitor their views on the economy and the central bank’s independence. Renewed concerns over the Fed’s independence might cap the upside for the USD in the near term.
Across the pond, the ECB decided to keep the three key ECB interest rates unchanged at its September meeting. The ECB will maintain its data-dependent, meeting-by-meeting approach to monetary policy. Meanwhile, ECB Vice President Luis de Guindos said Thursday that the central bank might not have completed a series of rate cuts that began in June 2024. Nonetheless, ECB Governing Council member Martins Kazaks noted that the central bank can tolerate inflation just below 2% and should take time to weigh carefully whether more action is needed.
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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