EUR/USD remains below 1.1750 due to increased market caution
- EUR/USD holds losses as the US Dollar firms on heightened caution amid Middle East uncertainty.
- Trump extends the ceasefire after the second round of US-Iran peace talks collapsed.
- ECB’s Lagarde warns Eurozone outlook is highly uncertain amid enormous energy supply shock.
EUR/USD remains subdued for the second consecutive day, trading around 1.1740 during the Asian hours on Wednesday. The pair holds little losses as the US Dollar (USD) gains ground on increased market caution amid ongoing uncertainty surrounding the Middle East conflict.
US President Donald Trump extended the ceasefire until negotiations between the two sides make progress, per Bloomberg. The US blockade on Iranian vessels continues after the second round of talks collapsed. Iran’s military warned of strong strikes on preselected targets following repeated threats from Trump.
US Treasury Secretary Scott Bessent said Wednesday the Navy will maintain its blockade of Iranian ports, targeting Tehran’s key revenue sources by restricting maritime trade. The UK Defence Ministry said military planners from over 30 countries will meet in London for two days from Wednesday to advance efforts to reopen the Strait of Hormuz and finalize detailed plans.
On the data front, US Retail Sales increased 1.7% month-over-month (MoM) in March, compared to the 0.7% rise (revised from 0.6%) recorded in February. The figure exceeded market expectations of 1.4%. On a YoY basis, Retail Sales rose 4.0% in March, matching February’s reading. On the Eurozone side, the preliminary readings of the HCOB Purchasing Managers’ Index (PMI) will be eyed on Thursday.
European Central Bank (ECB) President Christine Lagarde warned on Tuesday that the Eurozone outlook remains highly uncertain amid an enormous energy supply shock linked to Middle East tensions and the Strait of Hormuz blockade. While energy prices haven’t yet reached worst-case levels, Lagarde emphasized the outlook remains fragile.
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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