EUR/USD surges toward 1.1800 ahead of economic data from Eurozone, Germany
- EUR/USD appreciates ahead of Eurozone Industrial Production and the German ZEW Economic Sentiment survey.
- The Euro gains on hawkish comments from the ECB officials.
- Traders expect the Fed to lower rates by 25 basis points in September.
EUR/USD extends its winning streak for the fourth consecutive session, trading around 1.1780 during the Asian hours on Tuesday. The pair appreciates as the Euro (EUR) gains ground ahead of seasonally adjusted Eurozone Industrial Production figures for July and German ZEW Survey Economic Sentiment data for September.
The Euro draws support against its peers from hawkish European Central Bank (ECB) commentary. European Central Bank (ECB) board member Isabel Schnabel said on Tuesday that interest rates in the Eurozone are in a good place and added that upside risks to inflation continue to dominate. Schnabel said the growth is likely to exceed the potential, with domestic demand counteracting falling exports.
ECB policymaker Peter Kazimir said Monday that policy should not be adjusted over “small deviations” from the inflation target, while warning of upside risks to inflation. Kazimir added that interest rates have been brought into neutral territory.
The EUR/USD pair advanced as the US Dollar (USD) weakened on rising expectations that the Federal Reserve (Fed) will cut rates by 25 basis points at its September meeting on Wednesday. Markets are also assigning a slim probability to a larger 50-basis-point cut, while pricing in continued easing through 2026 to counter the risk of recession.
Traders will likely observe the Fed’s Summary of Economic Projections (SEP), the ‘dot plot,’ where each member of the Federal Open Market Committee (FOMC) expects the federal funds rate in the near future.
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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