EUR/USD posts modest gains to near 1.1550, traders brace for US NFP data
- EUR/USD trades with mild gains near 1.1540 in Friday’s early Asian session.
- ECB’s Galhau said a rate hike is "highly likely," though the timing is uncertain.
- Geopolitical tensions in the Middle East could underpin the US Dollar, a safe-haven currency.
The EUR/USD pair posts modest gains around 1.1540 during the early Asian session on Friday. Trading volumes are likely to be thin due to the Good Friday holiday. The US Nonfarm Payrolls (NFP) report for March will take center stage later on Friday.
Hawkish European Central Bank (ECB) rhetoric could lift the shared currency in the near term. ECB policymaker Francois Villeroy de Galhau said on Thursday that the central bank’s next interest rate move will very likely be an increase, although it is still too early to say when it will start hiking.
Traders are now pricing in nearly an 81.0% probability of a 25 basis point (bps) hike at the upcoming April 30 meeting, according to the ECB Watch Tool.
Ongoing conflict in the Middle East has entered its second month. This could push crude oil prices and boost the US Dollar (USD) as a safe-haven currency. US President Donald Trump on Thursday touted the destruction of a bridge in Tehran, Iran. He warned that there was “much more to follow” and urged Tehran to “make a deal before it is too late.”
Meanwhile, Iran’s foreign minister, Abbas Araghchi, stated that Washington’s recent strikes on civilian infrastructure will not force the country to back down, adding that such actions “convey the defeat and moral collapse of an enemy in disarray.”
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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