- EUR/USD declines on the last day of the week, although it lacks continuation sales.
- A softer tone around US bond yields weakens the USD and lends support to the pair.
- Expectations of less aggressive Fed easing and further ECB rate cuts should cap the upside.
The EUR/USD pair struggles to capitalize on the previous day’s strong bullish move of around 60 pips and trades with a slight negative bias during the Asian session on Friday. However, spot prices manage to stay comfortably above the 1.0800 level and the nearly four-month low touched on Wednesday amid moderate US Dollar (USD) price action.
The US Dollar Index (DXY), which tracks the dollar against a basket of currencies, consolidates after overnight pullback from its highest level since July 30 amid a softer tone around yields. US Treasuries. In addition to this, signs of stability in the stock markets turn out to be another factor undermining the safe-haven Dollar, which, in turn, helps limit the losses of the EUR/USD pair.
That said, growing acceptance that the Federal Reserve (Fed) will proceed with smaller rate cuts amid a still resilient economy, along with concerns about deficit spending following the US presidential election, act as a tailwind for US bond yields. In addition to this, lingering geopolitical risks stemming from the ongoing conflicts in the Middle East favor USD bulls and should limit the EUR/USD pair.
Meanwhile, preliminary Eurozone PMIs released on Thursday showed the economy stagnated for the second straight month in October and inflation slowed. This, in turn, validates the view of the European Central Bank (ECB) that the disinflationary process is well underway and supports the prospects for further policy easing, which could weaken the Euro and help keep the pair in check. EUR/USD.
Market participants now await the release of Germany’s Ifo Business Climate Index to get some momentum ahead of US macro data – Durable Goods Orders and the revised Michigan Consumer Sentiment Index. This, along with US bond yields and broader risk sentiment, will influence USD price dynamics and help traders take advantage of short-term opportunities around the EUR/USD pair.
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.
