EUR/USD remains subdued near 1.1600 following HCOB PMI data
- EUR/USD holds losses following February’s HCOB PMI data from Germany and the Eurozone.
- HCOB Germany Services PMI rose to 53.5 in February, above the 53.4 expectations.
- The US Dollar stays firm amid diminishing likelihood of imminent Fed rate-cut.
EUR/USD extends its losses for the third successive session, trading around 1.1600 during the European hours on Wednesday. The pair holds losses following the release of February’s HCOB Purchasing Managers’ Index (PMI) data from Germany and the Eurozone. Attention now turns to the US ISM Services PMI due later in the day.
The HCOB Germany Services PMI inched higher to a four-month high of 53.5 in February from a market expectation of 53.4, and compared to 52.4 in January. Meanwhile, Composite PMI improved to 53.2 from 53.1 prior.
HCOB Eurozone Composite PMI rose to a three-month high of 51.9 in February, from 51.3 in January. Meanwhile, HCOB Services PMI climbed to a two-month high of 51.9 from 51.6 prior, pointing to faster output growth compared to the start of the year.
The EUR/USD pair depreciates as the US Dollar (USD) remains stronger on fading expectations of imminent rate cuts from the Federal Reserve (Fed). Higher energy prices due to escalating tensions in the Middle East have added to inflation concerns, prompting markets to scale back bets on near-term policy easing. Investors largely expect the US central bank to keep interest rates unchanged until summer, despite calls from US President Donald Trump for lower borrowing costs.
The US Dollar also gains ground as safe-haven demand increases due to the ongoing Middle East war. US President Donald Trump warned that the escalation could pave the way for an equally hardline leadership in Iran, underscoring uncertainty surrounding the conflict’s outcome.
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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