EUR/USD remains near 1.1600 as ECB holds steady, Fed easing eyed
- EUR/USD may regain its ground as the ECB is expected to hold interest rates steady for the time being.
- The US Dollar gains as the US House is set to vote on the bill to end the government shutdown.
- Weaker ADP employment data have strengthened expectations for Fed policy easing.
EUR/USD remains steady after five days of gains, trading around 1.1580 during the Asian hours on Wednesday. The pair may continue its winning streak as the Euro (EUR) could further gain amid a cautious tone surrounding the European Central Bank (ECB) policy outlook. The ECB is expected to keep interest rates unchanged for now, backed by steady economic performance and inflation near target.
Traders will likely observe the upcoming German inflation data, including Consumer Price Index (CPI) and Harmonized Index of Consumer Prices (HICP) data for October, to gain further impetus on the European Central Bank’s (ECB) policy outlook.
The EUR/USD pair maintains its position as the US Dollar (USD) holds gains due to optimism over the ongoing process to reopen the United States (US) government. The US Senate completed its job and passed the bill that would end the government shutdown. The House is set to vote on the bill on Wednesday, sending it to US President Donald Trump for signature. That would reopen the government, sending paychecks and unleashing economic data releases.
However, the Greenback faced challenges as weaker-than-expected Automatic Data Processing (ADP), on Tuesday, employment data reinforced expectations of policy easing. Private employers shed an average of 11,250 jobs per week on average in the four weeks ended October 25, compared with 14,250 previously. The CME FedWatch Tool shows markets pricing in a 68% chance of a 25-basis-point rate cut in December.
Euro FAQs
The Euro is the currency for the 20 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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