EUR/USD holds losses near 1.1650 ahead of Eurozone Retail Sales
- EUR/USD loses ground as Eurozone Retail Sales are anticipated to ease in July.
- Weaker July JOLTS data strengthened market expectations for a September Fed rate cut.
- Minneapolis Fed President Neel Kashkari warned that tariffs are driving up consumer goods costs, contributing to higher inflation readings.
EUR/USD edges lower after registering gains in the previous session, trading around 1.1650 during the Asian hours on Thursday. The pair loses ground ahead of Eurozone Retail Sales data. Traders will shift their attention toward the weekly Initial Jobless Claims, the ADP Employment Change, and the ISM Services Purchasing Managers Index (PMI) due later in the North American session.
Eurozone Retail Sales are anticipated to climb by 2.4% year-over-year in July, against the previous 3.1% increase. However, the monthly sales are expected to see a 0.2% decline, swinging from the previous increase of 0.3%. Attention will shift toward Eurozone Gross Domestic Product (GDP) for the second quarter and Germany’s July Factory Orders due on Friday.
However, the EUR/USD pair may regain its ground as the US Dollar (USD) could struggle as weaker-than-expected July JOLTS Job Openings boosted the odds of the Federal Reserve (Fed) rate cut in September. Job openings declined to 7.18 million from 7.35 million, marking the weakest level since September 2024 and missing forecasts of 7.4 million. The CME FedWatch tool indicates pricing in more than 97% of a 25-basis-point (bps) rate cut by the Fed at the September policy meeting, up from a 92% chance a day ago.
However, Minneapolis Fed President Neel Kashkari flashed another policy warning sign on Wednesday, cautioning that tariffs are pushing the consumer-facing costs of goods higher, resulting in climbing inflation figures. Kashkari also cautioned that the US economy is pivoting harder into a "soft landing" scenario. Meanwhile, Atlanta Fed President Raphael Bostic said that high inflation remained the Fed’s main risk, but added that signs of labour market weakness still pointed to a single quarter-point rate cut this year.
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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