- EUR/USD is hovering around 1.1010 in the Asian session on Thursday.
- Eurozone GDP rose 0.3% in the three months to June, in line with estimates.
- US CPI inflation was in line with market consensus.
The EUR/USD pair consolidates its gains near 1.1010 after retreating from a fresh seven-month high during the European session on Thursday. The Eurozone Gross Domestic Product (GDP) growth figure for the second quarter (Q2) printed exactly as expected, boosting the Euro (EUR) against the US Dollar.
Data released by Eurostat on Wednesday revealed that the Eurozone economy grew by 0.3% quarter-on-quarter in the second quarter compared with the first three months of this year. On an annual basis, the economy expanded by 0.6%. Both figures were in line with market consensus and could boost the shared currency in the short term.
However, the upside in GDP growth could be limited. ING economist Bert Colijn said, “With recent numbers casting doubt on the strength of the services sector, GDP growth expectations for the rest of the year have weakened.” Markets expect the European Central Bank (ECB) to cut rates again in September as the economic outlook remains fragile after it kept its key interest rates unchanged at its July meeting.
Across the Atlantic, more signs that US inflation is cooling are weighing on the USD and creating a tailwind for EUR/USD. US headline CPI inflation fell to 2.9% y/y in July from 3% in June. This was softer than estimated, the Labor Department showed on Wednesday. Core CPI, excluding food and energy, rose 3.2% y/y, compared with a 3.3% increase seen in July, in line with market consensus.
Traders are looking to the release of US economic data on Thursday for fresh impetus, including US Retail Sales, Weekly Initial Jobless Claims, Philly Fed Manufacturing Index and Industrial Production. Stronger than expected readings could support the dollar and limit the pair’s upside.
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.
