EUR/USD hovers below 1.1400 as Eurozone inflation falls below ECB’s 2% target
- EUR/USD maintains its position as the US Dollar depreciates due to US economic uncertainty.
- JOLTS Job Openings reported 7.39 million jobs in April, which surprisingly came higher than the expected 7.1 million.
- The Eurozone Harmonized Index of Consumer Prices declined 1.9% YoY in May, below the ECB’s 2% target.
EUR/USD moves little after registering losses in the previous session, trading around 1.1380 during the Asian hours on Wednesday. The pair may appreciate as the US Dollar (USD) struggles due to traders’ caution amid rising tariff uncertainty and its potential to hurt growth in the US economy.
Job Openings and Labor Turnover Survey (JOLTS) Job Openings posted 7.39 million new positions in April, higher than March’s 7.2 million openings. This figure surprisingly came in above the market expectation of 7.1 million.
Traders await the US Nonfarm Payrolls (NFP) report for May, which is expected to show 130K job additions. If the report showed a stronger-than-expected outcome, this might lift the Greenback and put downward pressure on the EUR/USD pair.
US Treasury Secretary Scott Bessent said on Sunday that Trump and Xi Jinping were expected to meet soon to resolve trade disputes. China’s Ministry of Commerce said on Monday that China had complied with the agreement by cancelling or suspending relevant tariff and non-tariff measures aimed at the US "reciprocal tariffs." Last week, US President Donald Trump accused China of breaching a truce on tariffs reached earlier this month.
The Eurozone Harmonized Index of Consumer Prices (HICP) fell by 1.9% year-over-year in May, below the ECB’s 2% target for the first time in eight months. Core HICP, excluding volatile items, declined by 2.3% YoY, down from 2.7% in the previous month.
As the HICP May’s inflation falling below the European Central Bank’s (ECB) target, it reinforces expectations that the central bank might cut rates this week. Financial markets had fully priced in the odds of the ECB reducing its Deposit Facility Rate by 25 basis points (bps) to 2% at the upcoming monetary policy meeting.
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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