- EUR/USD may struggle as strong US retail sales data reinforces the chances of the Fed making nominal rate cuts.
- The CME FedWatch tool suggests a 90.8% and 74.0% probability of a 25 basis point rate cut in November and December, respectively.
- The Euro depreciated as the ECB reduced its deposit facility rate to 3.25%.
The EUR/USD pair breaks its four-day losing streak, trading around 1.0840 during the Asian session on Friday. However, the US Dollar (USD) received support and hit a two-month high of 103.87 on Thursday, supported by a strong US retail sales report, which fueled expectations that the Federal Reserve (Fed ) can implement nominal rate cuts.
According to the CME FedWatch tool, there is a 90.8% chance of a 25 basis point rate cut in November and a 74.0% chance of another cut in December.
US retail sales rose 0.4% month-on-month in September, outperforming both the 0.1% increase in August and market expectations for a 0.3% increase.
Initial claims for US jobless benefits fell by 19,000 during the week ending October 11, the largest decline in three months. The total number of applications fell to 241,000, significantly below the 260,000 expected.
However, the Euro faced downward pressure following the European Central Bank’s (ECB) policy decision on Thursday.
The ECB reduced its main refinancing operations rate and deposit facility rate by 25 basis points to 3.40% and 3.25%, respectively, as expected by market participants.
This marks the ECB’s first consecutive rate cut in 13 years, taking the deposit facility rate to 3.25%. The move follows a significant decline in inflation, which peaked at 10.6% in October 2022 and fell to 1.7% in September, below the ECB’s 2% target.
During the post-meeting conference, ECB President Christine Lagarde left markets uncertain about the timing of future rate cuts, while stating that the euro zone economy was on track for a soft landing.
The Euro FAQs
The Euro is the currency of the 19 countries of the European Union that belong to the eurozone. It is the second most 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 more than $2.2 trillion per day. EUR/USD is the most traded currency pair in the world, accounting for an estimated 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2 %).
The European Central Bank (ECB), headquartered in Frankfurt (Germany), is the reserve bank of the eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means controlling inflation or stimulating growth. Its main tool is the increase or decrease in interest rates. Relatively high interest rates (or the expectation of higher rates) tend to benefit the euro and vice versa. The Governing Council of the ECB makes decisions on monetary policy at meetings held eight times a year. Decisions are made by the directors of the Eurozone’s national banks and six permanent members, including ECB President Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), are an important econometric indicator for the euro. If inflation rises more than expected, especially if it exceeds the ECB’s 2% target, it forces the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to their counterparts tend to benefit the euro, making the region more attractive as a place for global investors to park their money.
The published data measures the health of the economy and may have an impact on the euro. Indicators such as GDP, manufacturing and services PMIs, employment and consumer confidence surveys can 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 raise 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 eurozone economies (Germany, France, Italy and Spain) are especially significant, as they represent 75% of the eurozone economy.
Another important data that is published about 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 during a given period. If a country produces highly in-demand export products, its currency will gain value simply from the additional demand created by foreign buyers seeking to purchase those goods. Therefore, a positive net trade balance strengthens a currency and vice versa in the case of a negative balance.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
