EUR/USD rises above 1.1650 ahead of Q2 Eurozone GDP data
- EUR/USD appreciates as the Euro receives support from a cautious tone surrounding the ECB policy outlook.
- Eurozone Gross Domestic Product is projected to hold steady at 1.4% YoY and 0.1% QoQ growth in Q2.
- The US Nonfarm Payrolls are expected to rise by about 75,000 in August, while Unemployment Rate is projected at 4.3%.
EUR/USD trades around 1.1670 during the Asian hours on Friday, after recovering losses registered in the previous session. The pair appreciates as the Euro (EUR) gains ground ahead of the Eurozone Gross Domestic Product (GDP) for the second quarter. The seasonally adjusted Eurozone GDP is expected to remain consistent at growth of 1.4% year-over-year and 0.1% quarter-over-quarter for the second quarter.
The Euro receives support from the cautious mood surrounding the European Central Bank’s (ECB) policy outlook. ECB board member Isabel Schnabel said on Tuesday that the interest rates are already mildly accommodative, adding that she does not see a reason for a further rate cut. Meanwhile, ECB Governing Council member Gediminas Šimkus said that there is “no reason to adjust rates now.”
The EUR/USD pair also draws support as the US Dollar (USD) struggles amid rising odds of a Federal Reserve rate cut in September, following softer-than-expected United States (US) job data released on Thursday. The CME FedWatch tool indicates a pricing in more than 99% of a 25-basis-point (bps) rate cut by the Fed at the September policy meeting, up from 87% a week ago.
The US Initial Jobless Claims increased to 237K in the week ending August 30, up from 229K previously and above the market forecast of 230K. Meanwhile, the ADP Employment Report showed a gain of 54,000 jobs in August, below expectations of 65,000 and following a revised 106,000 increase in July (from 104,000).
Traders are awaiting further labor market data that could shape the US Federal Reserve’s (Fed) policy decision in September. Economists project that US Nonfarm Payrolls will add about 75,000 jobs in August, while the Unemployment Rate is seen at 4.3%.
Euro FAQs
The Euro is the currency for the 19 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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