EUR/USD maintains position around 1.1800 near four-year highs
- EUR/USD edges lower after marking 1.1830, the highest since September 2021
- US ISM Manufacturing PMI climbed to 49.0 from 48.5 in May, against the expected 48.8.
- EU Commissioner Maros Sefcovic is expected to meet with US trade officials to advance the ongoing tariff negotiations.
EUR/USD halts its winning streak that began on June 18, trading around 1.1800 during the Asian hours on Wednesday. The pair inches lower after marking 1.1830, the highest since September 2021, recorded on Tuesday, which could be attributed to the slight gains in the US Dollar (USD).
The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is halting its losing streak that began on June 19 and is trading around 96.70 at the time of writing. The Greenback gains ground as the latest data indicated that economic activity in the United States (US) manufacturing sector improved in June.
US ISM Manufacturing PMI advanced to 49.0 from 48.5 in May, coming in above experts' expectations of 48.8. Moreover, US JOLTS Job Openings rose to 7.76 million in May, compared to 7.395 million openings reported in April. This figure came in above the market expectation of 7.3 million. Traders will likely observe the US ADP Employment Change report for June later in the day.
Fed Chair Jerome Powell highlighted on Tuesday that the US central bank will gauge more data before it initiates monetary policy easing, but he did not rule out a rate reduction in the July meeting. US Treasury Secretary Bessent told Fox News that he believes the Federal Reserve will cut interest rates earlier than the fall, but they will definitely cut rates by September at the latest.
The preliminary figures showed Eurozone inflation came in at 2% as expected, staying at the European Central Bank’s (ECB) target band. Meanwhile, ECB Chief Economist Philip Lane noted that the central bank’s recent tightening cycle has concluded.
The European Union (EU) is willing to accept a deal involving a 10% universal tariff on many of its exports, but is seeking US concessions on key sectors such as pharmaceuticals, alcohol, semiconductors, and commercial aircraft. The EU Commissioner Maros Sefcovic would travel to Washington to meet with US Trade Representative Jamieson Greer and Commerce Secretary Howard Lutnick in an effort to push the tariff talks forward, per Bloomberg.
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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