EUR/USD weakens below 1.1600, all eyes on Jackson Hole Symposium
- EUR/USD softens to near 1.1595 in Friday’s Asian session, losing 0.10% on the day.
- Fed’s Powell speech could offer some insight on the near-term path for interest rates.
- Eurozone business activity accelerated in August.
The EUR/USD pair attracts some sellers to around 1.1595 during the Asian trading hours on Friday, pressured by a rebound in the US Dollar (USD). The German Gross Domestic Product (GDP) for the second quarter (Q2) is due later on Friday. The attention will shift to the Federal Reserve (Fed) Chair Jerome Powell’s speech, with traders paring back wagers on an imminent interest-rate cut.
The soft US July jobs report and big downward revisions to hiring in May and June bolstered hopes of a rate reduction in the Fed September meeting. However, cautious comments from Fed officials and US economic data flashing inflationary risks have tempered those expectations and lifted the Greenback. Still, traders are now pricing in nearly a 75% odds of a 25 basis points (bps) rate cut next month, down from 92% a week earlier, according to the CME FedWatch tool.
Fed Chair Jerome Powell's speech at the Jackson Hole economic conference on Friday could offer some hints as to whether the US central bank will cut interest rates in September. Policymakers will get another month's data on inflation and employment before deciding on interest rates, so Powell may state that he and his colleagues are leaving their options open. A dovish tilt could undermine the USD and create a tailwind for the EUR/USD pair in the near term.
Across the pond, the flash HCOB PMI showed that business activity in August showed an improvement in Eurozone. The HCOB Manufacturing PMI rose to 50.5 in August from 49.8 in July. The figure came in better than the estimations of 49.5. Services PMI eased to 50.7 in August versus 51.0 prior, stronger than the 50.8 expected.
The European Central Bank (ECB) policymakers are anticipated to leave the deposit rate at 2.0% when they meet in September after their summer break, extending a pause that began last month following a yearlong campaign of cuts.
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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