Euro gains as US Dollar moves sideways amid market caution
- EUR/USD gains slightly as the US Dollar inches lower following recent volatility.
- Traders await new Fed Chairman Warsh’s first Meeting Minutes for vital clues on future US interest rates.
- ECB’s Fabio Panetta warned Eurozone inflation risks stay high due to Strait of Hormuz energy supply uncertainties.
EUR/USD maintains its position after registering modest losses in the previous day, trading around 1.1410 during the Asian hours on Wednesday. Traders’ attention is focused on Wednesday's release of the US Federal Reserve (Fed) Meeting Minutes, the first under newly appointed Chairman Kevin Warsh, for crucial clues regarding the future path of US interest rates.
The EUR/USD holds minor gains as the US Dollar (USD) inches lower after experiencing volatility. The Greenback may regain its ground amid rising safe-haven demand and renewing geopolitical tensions. US airstrikes against Iran came in response to Iranian attacks on commercial vessels in the crucial Strait of Hormuz, including a Qatari LNG carrier and a Saudi oil tanker.
Iranian Parliament Speaker Mohammad Bagher Ghalibaf warned that the era of bullying and extortion has ended and insisted that Iran will not fold under pressure. Meanwhile, the country's top joint military command denounced the attacks on southern Iran as blatant aggression, promising a crushing military response. Defiant over the strategic waterway, Tehran reaffirmed that it will block any US interference regarding the control and management of the Strait of Hormuz.
European Central Bank (ECB) rate hike bets rose after board member Isabel Schnabel warned that the Iran conflict keeps core inflation elevated. ECB policymaker and Governor of the Bank of Italy Fabio Panetta warned Eurozone inflation risks remain high due to energy supply uncertainties in the Strait of Hormuz.
Panetta flags fragile outlook and inflation risks, supporting Euro underperformance
ECB’s Panetta scores 6.2/10 on FXS Speechtracker, notably above the historic 4.2/10 baseline, signaling a more impactful intervention than usual. The focus on Strait of Hormuz uncertainty and increasingly frequent supply shocks underscores persistent upside inflation risks, tilting the tone modestly hawkish despite clear concern about downside growth.
By stressing that upside inflation and downside growth risks remain and that the outlook is fragile, the speech reinforces a narrative of constrained policy flexibility. For FX, this mix of inflation vigilance and growth anxiety suggests limited support for the Euro, with markets likely to price in lingering risk premia rather than a confident policy tightening path.
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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