ECB in the pipe with the Euro back at its October low
- EUR/USD stops a five-session slide at its October 14 low and climbs from there.
- The Fed held 10-2, and Fed Governor Cook cast her first dissent, for a hike.
- Euro area GDP for the third quarter is due Friday, forecast to slow to 0.2%.
The European Central Bank (ECB) decides on Thursday with EUR/USD a short way above a low it has hit twice, on October 14 and again on Wednesday. Wednesday's visit, just above 1.1100, followed five straight losing sessions. The pair has climbed back to around 1.1150 since then and is on track for its first gain in six sessions.
The Fed held on a 10-2 vote, with Cleveland Fed President Hammack and Fed Governor Cook, in her first dissent since joining in 2022, voting for a quarter-point hike. The statement upgraded US growth to a strong pace from solid. Traders raised the odds of a December Fed hike to about 81% from 75%, which bears on the US half of EUR/USD's rate gap.
Fed Chair Warsh said he doesn't believe in forward guidance outside a crisis, and that market-set interest rates, the ones the Dollar trades on, have turned lower. EUR/USD made its session high during his press conference. Two votes for a hike and an upgrade to US growth came on the one day in six that EUR/USD is up.
On the calendar
The ECB's decision on Thursday at 13:15 GMT sets the euro half of the pair's rate gap, with the deposit rate forecast to stay at 2.5%. ECB President Lagarde takes questions at 13:45 GMT, and euro area growth for the third quarter, due on Friday at 10:00 GMT, is forecast at 0.2% after 0.6%.
Third-quarter US Gross Domestic Product (GDP) is out on Thursday at 12:30 GMT, just before the ECB announces, forecast at a 3.2% annualised rate after 2.2%. The forecasts have growth speeding up on the US side of the pair and slowing on the euro side in the same quarter.
On the charts
EUR/USD has traded inside a range topped just above 1.1250 since early October, the latest stage of a decline from the August high just above 1.1700. It hasn't been above its 50-day Exponential Moving Average (EMA), now just under 1.1350, since mid-September, and the 200-day EMA is just under 1.1500.
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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