EUR/USD holds below 1.1700 despite Fed rate cut, US Jobless Claims data eyed
- EUR/USD trades with mild losses around 1.1690 in Thursday’s early European session.
- Fed’s Powell said central bank has delivered enough rate cuts for now.
- Analysts expect the ECB to keep its key interest rates unchanged at its upcoming monetary policy meeting next week.
The EUR/USD pair posts modest losses near 1.1690 during the early European trading hours on Thursday. However, the US Federal Reserve's (Fed) dovish rate cut on Wednesday could weigh on the US Dollar (USD) against the Euro (EUR). Traders await the release of the US weekly Initial Jobless Claims report, which is due later on Thursday.
The Federal Open Market Committee (FOMC) lowered its key overnight borrowing rate by a quarter percentage point, putting it in a range between 3.5%-3.75%. The statement said, “In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”
Fed Chair Jerome Powell noted during the press conference that the central bank is well-positioned to wait and see how the economy evolves. The market has priced in a 78% chance that the Fed will leave interest rates unchanged next month, compared with a 70% odds just before the rate cut announcement, according to the CME FedWatch tool.
Across the pond, rising bets that the European Central Bank (ECB) is done cutting interest rates could support the Euro. ECB President Christine Lagarde reiterated that the current monetary policy stance is in a good position. Meanwhile, ECB policymakers Francois Villeroy de Galhau and Gediminas Simkus stated that there is no immediate reason to either cut or raise rates, as the current policy stance is considered to be in a "good place."
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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