- The EUR/USD pair saw a strong recovery above 1.0880 on ECB rate cut hopes.
- The US ADP unemployment data took the pair back to Wednesday's opening range.
The EUR/USD pair saw a strong rally in early trading on Wednesday, up three-quarters of a percentage point from start to finish, following the release of German Consumer Price Index (CPI) inflation figures, and Markets once again adopted a cautious stance after Federal Reserve (Fed) Chairman Jerome Powell highlighted the need for inflation figures to reflect the Fed's 2% ceiling, not just meet it. EUR/USD retreated to the day's opening bids near 1.0850, as the pair remains stuck amid short-term consolidation, before falling back lower after the Fed left its principal unchanged monetary policy rate and focus on the uncertain economic outlook and reiterate the need to remain confident that inflation will reach and remain at 2%.
German retail sales retreated early on Wednesday, followed by a faster-than-expected easing of German CPI inflation, helping to bolster investor sentiment midweek that the European Central Bank (ECB) would see the path to a faster pace of rate cuts.
Daily Market Summary: EUR/USD Nears Center Ahead of Powell's Address
- EUR/USD rebounded to 1.0880 after German retail sales stood at -1.7% for the year ended December, adding to -2.4% in the previous period, as consumer spending cools, reinforcing an economic slowdown that will push the ECB towards rate cuts.
- German CPI inflation also fell faster than expected, with annualized CPI for the year ending January at 2.9%, down from 3.3% forecast and 3.7% in the previous period.
- Figures from the pan-European Harmonized Consumer Price Index (HICP) will be published on Thursday.
- European money markets now value the ECB's rate cuts until 2024 at 150 basis points, compared to 140 basis points on Tuesday.
- Fed Chair Jerome Powell is due to be announced at 19:30 GMT, and markets will be scrambling for signs that the Fed will cut rates sooner rather than later.
- The US ADP employment change fell to 107,000 in January versus the forecast of 145,000, down from 158,000 in the previous month (revised from 164,000).
- US Nonfarm Payrolls (NFP) figures will be released on Friday to cap the trading week.
- The Fed kept its monetary policy unchanged, highlighting economic uncertainty and the need for better indications that inflation will reach and remain at 2%.
- Money markets continue to bet on a Fed rate cut in March, but risk appetite soured slightly given the prospect of a half-hearted Fed.
- Rate swaps now see a 96% chance that the Fed will cut rates by at least 25 basis points before the May meeting.
- The Fed keeps its interest rate at 5.25%-5.5%, as expected
- Fed's Powell reiterates that the fed unanimously agrees that rates will have to go down this year.
- Despite this, the Fed needs inflation to come down and also remain at the 2% barrier for some time, signaling that markets could still be too overbid in rate cut bets.
Euro quote today
The following table shows the percentage variation of the Euro (EUR) against the main currencies. The euro was the strongest currency against the Australian dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.38% | 0.19% | 0.19% | 0.44% | -0.17% | 0.25% | 0.18% | |
| EUR | -0.38% | -0.20% | -0.16% | 0.10% | -0.54% | -0.08% | -0.19% | |
| GBP | -0.18% | 0.19% | 0.01% | 0.25% | -0.35% | 0.07% | 0.00% | |
| CAD | -0.19% | 0.17% | -0.05% | 0.24% | -0.36% | 0.06% | 0.01% | |
| AUD | -0.44% | -0.08% | -0.24% | -0.24% | -0.61% | -0.18% | -0.26% | |
| JPY | 0.26% | 0.52% | 0.34% | 0.38% | 0.71% | 0.43% | 0.39% | |
| NZD | -0.27% | 0.14% | -0.08% | -0.07% | 0.17% | -0.43% | -0.08% | |
| CHF | -0.20% | 0.17% | -0.03% | -0.02% | 0.13% | -0.38% | 0.04% |
The heat map shows the percentage changes of the major currencies against each other. The base currency is chosen in the left column, while the quote currency is chosen in the top row. For example, if you choose the euro in the left column and scroll down the horizontal line to the Japanese yen, the percentage change in the box will represent EUR (base)/JPY (quote).
Technical Analysis: EUR/USD about to rise after the Fed
EUR/USD pulled in both directions on Wednesday, falling early to 1.0806 before recovering above 1.0880 and settling back where it started, near 1.0850, as the market awaits Fed Chair Powell. The EUR/USD trimmed further lower after the Fed kept rates unchanged, testing 1.0820 in reaction. The pair then accelerated lower to test 1.0800 after Fed Chair Powell spoke on Wednesday.
The 200 hourly SMA remains a key technical barrier, limiting bullish momentum near 1.0860. The EUR/USD pair has been trading at familiar levels since mid-January, but bearish pressure has been increasing as the highs have been pushed back.
Daily candlesticks have the pair stuck at the lower end of a congestion pattern at the 200-day SMA near 1.0850, with upper price action capped by the 50-day SMA just north of 1.0900.
EUR/USD hourly chart
EUR/USD Daily Chart
Frequently asked questions about the Euro
What is the Euro?
The Euro is the currency of the 20 countries of the European Union that belong to the euro zone. 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 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% ).
What is the ECB and how does it influence the Euro?
The European Central Bank (ECB), headquartered in Frankfurt, Germany, is the reserve bank of the euro zone. 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 – tend to 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 made by the heads of the eurozone's national banks and six permanent members, including ECB President Christine Lagarde.
How do inflation data influence the value of the Euro?
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), are important econometric data for the euro. If inflation rises more than expected, especially if it exceeds the 2% target set by the ECB, it is forced to raise interest rates to bring it back under control.
Relatively high interest rates compared to their peers tend to benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
How do economic data influence the value of the Euro?
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 may 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.
The economic data for the four largest economies in the eurozone (Germany, France, Italy and Spain) are especially significant, as they represent 75% of the eurozone economy.
How does the trade balance affect the Euro?
Another important release 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 wishing 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.
