EUR/USD slips to near 1.1700 despite diverging Fed-ECB policy outlooks
- EUR/USD depreciates as the US Dollar gains ground despite Fed rate cut bets.
- US Nonfarm employment for March 2025 for March 2025 will likely be revised down by 911,000.
- The European Central Bank is expected to keep rates unchanged for the second consecutive meeting on Thursday.
EUR/USD remains subdued after registering around 0.5% losses in the previous session, trading around 1.1700 during the Asian hours on Wednesday. The pair faced challenges as the US Dollar (USD) gained ground despite the firming likelihood that the Federal Reserve (Fed) will start cutting interest rates as soon as next week. The CME FedWatch tool indicates a pricing in more than 93% of a 25-basis-point (bps) rate cut by the Fed at the September policy meeting, up from 86% a week ago.
US Nonfarm Payrolls Benchmark Revision for March 2025 will likely be revised down by 911,000, or about 76,000 fewer jobs per month, signaling a weaker labor market than previously estimated. The final benchmark revision will be issued in February 2026 with the publication of the January 2026 Employment Situation news release," the BLS noted in its press release.
Traders await US inflation reports that could provide more cues on Fed policy outlook. The August US Producer Price Index (PPI) is scheduled for release on Wednesday, followed by the Consumer Price Index (CPI) on Thursday.
The European Central Bank (ECB) is widely expected to keep rates unchanged for the second consecutive meeting on Thursday, supported by steady growth and inflation hovering near the target. Traders will likely observe the meeting for any guidance on the central bank’s outlook for the rest of the year.
The French parliament voted on a vote of no confidence on Prime Minister François Bayrou as parties could not agree to budget cuts, forcing President Emmanuel Macron to appoint the country’s fifth PM in less than two years.
Traders also keep their eyes on the geopolitical situation after Poland placed its air defenses on high alert, following a warning from Ukraine’s Air Force. Ukraine warned of a suspected Russian drone incursion into Polish airspace, breaching the North Atlantic Treaty Organization (NATO) airspace.
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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