Euro recovers from its 17-month low as the Dollar weakens

Source Fxstreet
  • EUR/USD climbs back above 1.1200 and makes its best level since October 9.
  • The Euro's high comes on a report about China's US bond holdings in Canada.
  • Final euro area inflation is due Friday, and euro area PMIs on October 23.

The Euro's rebound from its 17-month low came from the Dollar side, because the euro area's own news on Thursday was bad. EUR/USD climbed to just short of 1.1250, its highest since October 9, and hasn't been back there since, dipping just under 1.1200 on the US releases and recovering above it.

EUR/USD made that high on a report that China may be holding US government bonds through custodian banks in Canada. Canada's reported holdings of US debt have climbed to nearly $600 billion through a tariff fight with Washington. The 10-year Treasury yield fell toward 5.1% as the report spread, and the Euro gained more than the Pound on it, with EUR/GBP at its high for Thursday.

Euro area factory output fell 0.5% in August against a flat forecast, its third straight drop, and July was revised down to a 0.3% fall. European Central Bank (ECB) President Lagarde said on Wednesday that France's debt fix lies at home, and on Thursday France paid 4.16% to borrow for five years, up from 3.92%. EUR/USD was higher after both releases than before them.

On the calendar

Bundesbank President Nagel briefs reporters in Bangkok with German Finance Minister Klingbeil at 02:30 GMT on Friday. Final euro area inflation for September follows at 09:00 GMT, and the core rate is forecast unchanged at 2.5%. The ECB's deposit rate is 2.50% after hikes in June and September, and traders expect a hold on October 29 and a hike in December, the decision those figures feed.

Euro area Purchasing Managers Index (PMI) surveys are due at 08:00 GMT on Friday, October 23, after a composite 53.1, with US PMIs at 13:45 GMT the same day. Both sides of EUR/USD get their October business figures on the same Friday, six days before the ECB decides.

On the charts

Wednesday's dip below the 1.1150-1.1300 range EUR/USD had held since October 2 was gone by the end of that day's bar. The pair is trading near the midpoint of that range again. The climb from Wednesday's low is the biggest rebound of the slide that started just above 1.1700 on August 21, a fall of more than 5%.


EUR/USD daily chart

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.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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