- EUR/USD loses ground ahead of the release of EC consumer confidence data due on Tuesday.
- ECB Vice President Luis de Guindos said inflation data was in line with projections.
- Vice President Kamala Harris has secured support as the leading candidate for the presidential nomination.
The EUR/USD is retracing its recent gains, trading around 1.0870 during the European session on Tuesday. Traders are likely to be looking forward to the release of the European Commission (EC) consumer confidence data later in the day, which is expected to indicate an economic slowdown with an expected reading of -13.2 for July, compared to the previous reading of -14.0.
In an interview with Europa Press on Tuesday, European Central Bank (ECB) Vice President Luis de Guindos commented that inflation data is almost exactly as projected. Guindos noted that September is a more suitable month for decision-making compared to July, given the current high level of uncertainty, and stressed the need for prudence in decision-making.
Most expectations focus on the possibility of two more cuts by the Federal Reserve (Fed), although scenarios involving one or even three cuts are still in play. Meanwhile, for the European Central Bank (ECB), there is a strong belief that there will be two more reductions in key interest rates by the end of the year.
The US dollar’s upside may be limited as expectations of a Federal Reserve (Fed) rate cut in September increase. Last week, Fed Chairman Jerome Powell expressed further optimism about recent progress in inflation. In addition, Fed Governor Christopher Waller indicated that the time to lower the policy rate is approaching.
In U.S. politics, Democrats have united behind Vice President Kamala Harris as the front-runner for the presidential nomination. NBC News projected that Harris has secured endorsements from a majority of pledged delegates from the Democratic Party convention. The threshold to secure the nomination is 1,976 delegates, and NBC estimates that Harris has received the support of 1,992 delegates through spoken or written endorsements.
Euro FAQs
The Euro is the currency of the 20 European Union countries 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 volume of over $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), based in Frankfurt, Germany, is the reserve bank of the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s main mandate is to maintain price stability, which means controlling inflation or stimulating growth. Its main instrument is to raise or lower interest rates. Relatively high interest rates – or the expectation of higher rates – generally benefit the Euro and vice versa. The Governing Council of the ECB takes monetary policy decisions at meetings held eight times a year. Decisions are taken by the heads of the national banks of the Eurozone and six permanent members, including ECB President Christine Lagarde.
Eurozone inflation data, as measured by the Harmonised Index of Consumer Prices (HICP), is an important econometric data point for the euro. If inflation rises more than expected, especially if it exceeds the ECB’s 2% target, the ECB is forced to raise interest rates to bring inflation back under control. Relatively high interest rates compared to their peers usually benefit the euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases measure the health of the economy and can influence the Euro. Indicators such as GDP, manufacturing and services PMIs, employment and consumer sentiment 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 can encourage the ECB to raise interest rates, which will directly strengthen the Euro. Conversely, if economic data is weak, the Euro is likely to fall. Economic data from the four largest Eurozone economies (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone economy.
Another important output 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 during a given period. If a country produces highly sought-after export products, its currency will appreciate due to the additional demand created by foreign buyers who wish to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for 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.
