- The EUR/USD quotes in positive territory about 1,1195 during the Asian session on Wednesday.
- The US IPC inflation was slightly lower than estimates in April.
- Operators reduce bets on ECB rates cuts after conversations between the US and China.
The EUR/USD pair gains land to around 1,1195 during Wednesday’s Asian negotiation hours. The US dollar (USD) weakens compared to the euro (EUR) after US inflation data in April, which were lower than expected. The operators expect the data of the Harmonized Index of Consumer Price (HICP) of Germany for April in search of again, which will be published later on Wednesday.
Inflation in the United States (USA), measured by the change in the consumer price index (CPI), decreased to 2.3% year -on -year in April from 2.4% in March, below the market consensus of 2.4%, the Office of Labor Statistics reported Tuesday. This figure registered the lowest level since February 2021. The underlying CPI, excluding volatile food and energy prices, increased a 2.8% year -on -year in April, compared to the previous reading and the expectation of 2.8%. The US dollar lost ground in an immediate reaction to the US CPI report lower than expected.
The United States and China agreed to reduce tariffs from each other after two days of negotiations in Geneva, Switzerland. USA reduced tariffs on Chinese imports to 30% from 145%, while China cut tariffs on US imports to 10% from 125%. The optimism that a tariff agreement between the two largest economies in the world could cool the trade war has led operators to reduce the probabilities of a recession. This, in turn, could provide some support to the dollar and create a wind against the main torque.
On the other side of the Atlantic, the markets reduced bets on interest cuts of the European Central Bank (ECB) on Monday in the midst of the decrease in commercial and geopolitical tensions. The monetary markets have valued an ECB deposit rate of up to 1.80% by the end of the year, returning a few basic points above the levels seen in mid -April, before the ECB suggested that it was ready to cut rates in response to the possible adverse economic impact of US tariffs.
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 negotiated currency in the world, behind the US dollar. In 2022, it represented 31 % of all foreign exchange transactions, with an average daily business volume of more than 2.2 billion dollars a day. The EUR/USD is the most negotiated currency pair in the world, with an estimate of 30 %of all transactions, followed by the EUR/JPY (4 %), the EUR/GBP (3 %) and the EUR/AU (2 %).
The European Central Bank (ECB), based in Frankfurt (Germany), is the Eurozone reserve bank. The ECB establishes interest rates and manages monetary policy. The main mandate of the ECB is to maintain price stability, which means controlling inflation or stimulating growth. Its main tool is the rise or decrease in interest rates. Relatively high interest rates (or the expectation of higher types) usually benefit the euro and vice versa. The GOVERNMENT BOOK of the ECB makes decisions about monetary policy in meetings that are held eight times a year. The decisions are made by the directors of the National Banks of the Eurozone and six permanent members, including the president of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the harmonized consumer prices index (IPCA), are an important economic indicator for the euro. If inflation increases more than expected, especially if it exceeds 2% of the ECB, it forces the ECB to rise interest rates to control it again. Relatively high interest rates compared to their counterparts usually benefit the euro, since they make the region more attractive as a place for global investors to deposit their money.
Published data measure the health of the economy and can have an impact on the euro. Indicators such as GDP, manufacturing and services PMIs, employment and consumer trust surveys can influence the direction of the single currency. A strong economy is good for the euro. Not only attracts more foreign investment, but it can 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. The economic data of the four largest economies in the euro zone (Germany, France, Italy and Spain) are especially significant, since they represent 75% of the economy of the euro area.
Another important fact that is published on the euro is the commercial balance. This indicator measures the difference between what a country earns with its exports and what you spend on imports during a given period. If a country produces highly demanded export products, its currency will gain value simply by the additional demand created by foreign buyers seeking to buy 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.
