Euro area GDP is next for a Euro rebounding from a new low
- EUR/USD rises to just under 1.1200 after dipping below its October 14 low.
- ECB President Lagarde says a December hike is likely after a unanimous hold.
- Euro area inflation for October is due Wednesday, November 4, after 3.8%.
European Central Bank (ECB) President Lagarde said another hike in December remains likely, and EUR/USD has climbed from below its October 14 low to above Wednesday's high. It dropped to just above 1.1100 before turning and is trading just under 1.1200, near its session high and on track for a second straight gain.
The ECB kept its deposit rate at 2.50%, after two hikes since the Iran war pushed energy prices up. ECB President Lagarde said a third hike was discussed before a unanimous decision to hold, and EUR/USD began its climb while she took questions. Money markets put the odds of that hike coming in December above 80%.
ECB President Lagarde said in a video posted before the decision that she'll leave on February 7, about nine months before her term ends. EUR/USD's session low came on the rate decision that followed, and Goldman Sachs said the ECB is likely to behave the same way whoever replaces her.
On the calendar
The euro area's first estimate of third-quarter growth is out on Friday at 10:00 GMT, with 0.2% forecast after 0.6%, and ECB Chief Economist Lane speaks at 16:10 GMT. October's euro area inflation comes at 10:00 GMT on November 4, after 3.8% in September. All three bear on the December hike.
The US Employment Cost Index for the third quarter comes out on Friday at 12:30 GMT, with 0.8% forecast after 0.9%. The Institute for Supply Management (ISM) services index follows at 15:00 GMT on November 4, after 54.9, the day after the US midterm elections. Both feed into the Fed's next move in December.
On the charts
The bounce off the session low has recovered about an eighth of the slide from the August peak. EUR/USD is still about 150 pips under its 50-day Exponential Moving Average (EMA). The 50-day crossed under the 200-day in mid-September, and the two are about 1.5 cents apart.
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.
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