Euro edges up within range against British Pound amid cautious markets
- EUR/GBP picks up from 0.8350 lows, on track to its second weekly recovery.
- Hawkish comments from ECB officials are supporting the Euro, although higher Oil prices are keeping rallies limited.
- Inflation figures from Eurozone member countries confirm that price pressures remain elevated.
The Euro (EUR) posts minor gains against the British Pound (GBP) on Friday with risk appetite fading as hopes of a Middle East peace deal wane and oil prices pick up from two-month lows. The EUR/GBP pair remains steady above 0.8350, on track to its second consecutive weekly appreciation, although it seems unable to extend gains above 0,8370, which leaves the broader bearish trend in place.
Investors’ appetite for risk has vanished on Friday, amid the lack of progress on the diplomatic efforts to put an end to the Middle East conflict. US President Donald Trump dampened hopes of a breakthrough further, stating on Thursday that “we do not need a deal with Iran”. Tehran, in turn, stuck to a set of conditions already deemed unacceptable by the US.
Oil prices pick up, adding pressure on the Euro
The waning hopes of a swift resolution of the conflict boosted Brent Oil prices 3.7% higher on Thursday, to levels right above $95.00 before easing to $94.15 on Friday. Crude is still about 17% below last week’s highs, but concerns that the situation in the Middle East might take a turn for the worse before getting better are likely to keep prices buoyed and Euro rallies capped.
In the Eurozone, European Central Bank policymakers (ECB) have reiterated their concern about the high inflation pressures earlier on Friday, adding to the case for a rate hike in December and keeping the Euro supported.
On the macroeconomic front, German wholesale prices accelerated to an 8.8% yearly pace in October, from 8.7% in September, although the monthly reading showed some moderation. France’s Consumer Price Index (CPI) eased beyond expectations, while in Spain, inflation remained steady, in both cases at levels well above the ECB’s 2% target.
The UK calendar is thin on Friday, with the only event worth mentioning being the NIESR Gross Domestic Product (GDP) Estimate due later in the day, which is unlikely to have a major impact on the Pound.
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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