EUR/USD loses ground below 1.1850 ahead of FOMC Minutes
- EUR/USD softens to around 1.1840 in Wednesday’s early European session.
- US growth outlook eases downward pressure on the US Dollar.
- Hopes for the US-Iran negotiations could improve risk sentiment and lift the Euro.
The EUR/USD pair loses traction near 1.1840 during the early European session on Wednesday, pressured by renewed US Dollar (USD) demand. Traders brace for the Federal Open Market Committee (FOMC) Minutes for signals on future rate cuts, which will be released later on Wednesday.
Improvement in US growth prospects, business confidence and expectations that US President Donald Trump will be less aggressive heading into the midterm elections this year provide some support to the Greenback and act as a headwind for the major pair.
“A more growth‑focused and less politically volatile Trump administration ahead of the midterms will be added support,” said Dan Tobon, head of G10 FX strategy at Citi in New York. "We think animal spirits will be coming back a bit. All of these things in conjunction, in our view, should actually be quite positive for the dollar.”
On the other hand, hopes for the US-Iran negotiations could boost the riskier assets, such as the shared currency. Iranian Foreign Minister Abbas Araghchi said on Tuesday that it has reached an understanding with the US on the main "guiding principles" to resolve their dispute over Tehran's nuclear program. However, officials said work still needed to be done.
The attention will shift to the preliminary readings of the Purchasing Managers’ Index (PMI) from the Eurozone and Germany on Friday. If the data show stronger-than-expected outcomes, this could underpin the EUR against the USD in the near term.
Euro FAQs
The Euro is the currency for the 20 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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