EUR/USD holds losses near 1.1450 after retreating from two-month highs
- EUR/USD pulled back from a two-month high of 1.1495, reached on Thursday.
- US Weekly Initial Jobless Claims climbed to 247,000, above the expected 235,000.
- The European Central Bank delivered a widely expected 25 basis point rate cut on Thursday.
EUR/USD continues to lose ground after pulling back from a two-month high of 1.1495, marked on June 5, currently trading around 1.1440 during the Asian hours on Friday. Traders adopt caution ahead of the upcoming US Nonfarm Payrolls, which is expected to have added 130,000 jobs in May, below the 177,000 increase in April. The Unemployment Rate is also expected to hold steady at 4.2%.
The US Department of Labor released Weekly Initial Jobless Claims, which rose to 247,000, above the expected 235,000. On Thursday, US ADP private sector employment rose 37,000 in May, against a 60,000 increase (revised from 62,000) recorded in April, far below the market expectation of 115,000.
US President Donald Trump has a phone call with Chinese President Xi Jinping. Trump said that the call was productive and prepared to continue tariff negotiations. However, Trump and his team struggled to stay composed with Chinese trade officials. Last week, Trump accused China of breaching a truce on tariffs after a Washington-Beijing agreement of temporarily lowering reciprocal tariffs in a meeting in Geneva.
On Thursday, the European Central Bank (ECB) delivered a 25 basis points rate cut, as widely expected, and reduced interest rates to 2.0% from 2.25%. The ECB outlined, in its accompanying statement, its meeting-by-meeting approach moving forward and updated its projections for growth and inflation. Moreover, ECB President Christine Lagarde said in a post-meeting press conference that monetary policy is “well-positioned,” while the current uncertain outlook is more than usual. Lagarde also added that the central bank is close to ending the easing cycle.
Euro FAQs
The Euro is the currency for the 19 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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