EUR/USD stays near 1.1600 after official ending of US government shutdown
- EUR/USD remains steady as traders adopt caution after Trump signed the government funding bill.
- The US Dollar remains subdued amid uncertainty surrounding the US economic outlook and the Fed policy direction.
- ECB’s Isabel Schnabel remarked that interest rates are “absolutely” at an appropriate level.
EUR/USD moves little after six days of gains, trading around 1.1590 during the Asian hours on Thursday. The pair remains steady as the US Dollar (USD) holds ground after US President Donald Trump signed the government funding bill on Thursday, marking the official end of the record 43-day government shutdown in the United States (US) history.
The US Dollar remains silent amid an uncertain US economic outlook and Federal Reserve (Fed) policy outlook. Weaker-than-expected private labor data for October strengthened expectations of potential Fed policy easing, as the ADP Employment Change report on Tuesday indicated an average weekly job loss of 11,250 in the four weeks to October 25. Moreover, Challenger, Gray & Christmas announced that US employers slashed 153,074 jobs in October, up from the 55,597 cuts announced in October 2024.
However, the likelihood of the Federal Reserve (Fed) rate cut in December faded following recent hawkish Fedspeak. The CME FedWatch Tool shows markets pricing in nearly a 60% chance of a 25-basis-point Fed rate cut in December, down from 67% a day ago.
Atlanta Fed President Raphael Bostic addressed economic trends at the Atlanta Economic Club on Wednesday. Bostic cautioned that easing policy too soon could “feed the inflation beast,” while noting that a sharp downturn in the labor market is unlikely in the near term. Meanwhile, Boston Fed President Susan Collins said that “Elevated inflation warrants still mildly restrictive policy,” adding that she has not seen “an increase in downside employment risks since the Summer.”
The EUR/USD pair may continue its winning streak as the Euro (EUR) receives support from a cautious 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.
ECB Executive Board member Isabel Schnabel stated on Wednesday that there is no need to adjust interest rates under current conditions, emphasizing that the central bank’s primary focus remains on core inflation. Schnabel added that interest rates are “absolutely” at an appropriate level, while noting that food-price inflation remains relatively strong.
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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