Fed and ECB decisions fall a day apart for a Euro under 1.12
- EUR/USD ends at its low, under 1.1200 for the first time since October 14.
- Ifo expectations rise to 91.6, and EUR/USD gives up the gain within 11 bars.
- The ECB's decision Thursday, a day after the Fed's, is expected to be a hold.
Germany's Ifo survey beat its forecast on Monday, and EUR/USD was back under its pre-release level by the 11th five-minute bar. Dollar buying ahead of the Federal Open Market Committee (FOMC) meeting, which ends Wednesday, then took it to its lowest since October 15. It ended at that low, below 1.1200 for the first time since October 14.
The US two-year yield rose to about 4.71% before the Fed's meeting. The Fed's 3.75%-4.00% range is already well above the European Central Bank (ECB) deposit rate of 2.50%. Futures put a December Fed hike near 80%, which would widen that gap in the Dollar's favour.
The Ifo business climate rose to 90.2 against an 89.8 forecast, with expectations up to 91.6 from 90.4 and the current assessment down to 88.8 from 89.5. A firmer German outlook adds to the case for the December ECB hike that 64 of 73 economists in a Reuters poll expect. EUR/USD's rise on the release was less than a quarter the size of the fall that followed it.
On the calendar
US durable goods orders at 12:30 GMT on Tuesday are forecast up 0.6% after a 0.1% fall. A hold is expected in the Fed's 18:00 GMT statement on Wednesday. Fed Chair Warsh takes questions at 18:30 GMT, with the December hike the open question.
ECB President Lagarde speaks at 17:00 GMT on Tuesday, after the ECB's bank lending survey at 09:00 GMT. The ECB announces at 13:15 GMT on Thursday, with the deposit rate expected to stay at 2.50%, and its December decision is the Euro's side of the rate gap.
On the charts
Monday's drop gave back about three-fifths of the bounce off the October 14 low just above 1.1100 to the October 16 high just above 1.1250. EUR/USD is below its 50-day Exponential Moving Average (EMA), just above 1.1350, and its 200-day, just under 1.1500, and both have fallen in every session since mid-September.
EUR/USD 5-minute 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.
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