- EUR/USD could depreciate further as the US Dollar (USD) receives support from Trump’s trading.
- Republicans will gain significant authority to push an expansive agenda focused on tax and spending cuts.
- The ECB could consider cutting rates to near zero by 2025 if Europe’s economic growth weakens due to Trump’s tariffs.
EUR/USD holds up after depreciating around 2% in the previous session, trading near 1.0740 during the Asian session on Thursday. Downside risk for the EUR/USD pair seems possible as the US Dollar (USD) could receive support from Trump’s trading following the Republicans’ victory in the US elections.
Donald Trump’s Republicans appeared to be in a position to potentially take control of both chambers of Congress, giving them significant authority for the first time in eight years to push an expansive agenda focused on tax and spending cuts, energy deregulation and border security.
According to Reuters, Republican lawmakers and advisers indicated that initial priorities would likely include extending Trump’s 2017 tax cuts, funding the U.S.-Mexico border wall, cutting unspent funds allocated by Democrats, dismantling the Department of Education and limit the powers of agencies such as the Consumer Financial Protection Bureau.
However, the US Dollar Index (DXY), which measures the value of the dollar against its six major peers, retreated from a four-month high of 105.44, recorded on Wednesday. The DXY is trading around 104.90 amid a downward correction in US Treasury yields. US yields soared to their highest levels since July on Wednesday to 4.31% and 4.47%, respectively, on Wednesday.
Traders anticipate that the US Federal Reserve (Fed) will reduce its benchmark interest rate by 25 basis points at its November meeting on Thursday. The CME FedWatch tool indicates a 98.1% probability that the Fed will make this quarter-point cut in November, showing a strong market consensus for a modest taper this week.
If Europe’s growth stalls due to Trump’s tariffs, the European Central Bank (ECB) could be forced to take aggressive action, potentially cutting rates to near zero by 2025, according to Euronews. Markets expect the ECB to reduce the Deposit Rate by the typical 25 basis points (bps) in December.
Data from the EU-based market is relatively scarce this week. EU retail sales figures are scheduled to be released on Thursday, with the EU leaders’ summit concluding on Friday. ECB President Lagarde will also make a follow-up appearance on Saturday.
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.
