EUR/USD stays near 1.1750 ahead of potential US government shutdown, HICP inflation
- EUR/USD remains steady as traders adopt caution ahead of the Eurozone Harmonized Index of Consumer Prices.
- US federal government funding is set to expire at 04:00 GMT on Wednesday, potentially triggering a shutdown.
- The US Dollar faces challenges as recent US jobs data boosted expectations of further Fed rate cuts.
EUR/USD moves little after three days of gains, trading around 1.1730 during the Asian hours on Wednesday. The pair remains steady ahead of the preliminary Eurozone Harmonized Index of Consumer Prices (HICP) due later in the day.
Eurozone HICP is expected to rise 2.2% year-over-year in September, following a 2.0% increase in August. Meanwhile, the annual core HICP inflation is anticipated to remain consistent at 2.3% in the same month. The monthly inflation and core inflation were at 0.1% and 0.3%, respectively, in August.
US federal government funding is set to expire at 04:00 GMT on Wednesday, leading to a government shutdown. Around 750,000 federal employees are facing furlough after Congress failed to pass funding bills. The US Labor Department said Monday that its statistics agency would suspend data releases, including Friday’s closely watched monthly jobs report, if a partial shutdown occurs," per Reuters.
The EUR/USD pair may further appreciate as the US Dollar (USD) struggles after soft US jobs data increased the odds of Federal Reserve (Fed) rate cuts. The CME FedWatch Tool suggests that markets are now pricing in nearly a 97% chance of a Fed rate cut in October and a 76% possibility of another reduction in December.
The latest Job Openings showed the labor market is slowing, yet vacancies rose from 7.21 million to 7.23 million in August. Meanwhile, the hiring rate edged down to 3.2%, the lowest level since June 2024, while layoffs remained at a low level.
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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