EUR/USD attracts some sellers below 1.0400 ahead of German Retail Sales data

EUR/USD trades in negative territory near 1.0385 in Friday’s Asian session.
The ECB cut borrowing costs by 25 bps on Thursday, as widely expected.
US GDP came in weaker-than-expected in Q4.

Lallalit Srijandorn FXStreet

The EUR/USD pair attracts some sellers to around 1.0385 during the Asian trading hours on Friday. The expectation of further interest rate cuts by the European Central Bank (ECB) weighs on the Euro (EUR) against the Greenback. Investors await more clarity about fresh tariff threats by US President Donald Trump for fresh catalysts.

As widely expected, the ECB decided to cut the deposit facility at its January meeting on Thursday, bringing its key rate to 2.75%. The ECB left the door open to additional reductions amid an uncertain economic outlook and worries about persistent inflation, which might drag the shared currency lower.

Preliminary data released by Eurostat on Thursday showed that the euro zone economy flatlined in the fourth quarter (Q4) of 2024, following a 0.4% expansion in Q3. This reading came in weaker than the expectation of 0.1% growth. The downbeat Eurozone GDP report contributes to the EUR’s downside. Market players will take more cues from Germany’s Retail Sales and Unemployment Rate data for December, which will be released later on Friday. If the reports show a stronger outcome, this could help limit the pair’s losses.

Across the pond, the US Federal Reserve (Fed) on Wednesday left its benchmark overnight interest rate unchanged in the 4.25%-4.50% range. Fed Chair Jerome Powell signaled that there be no rush to cut them again until inflation and jobs data made it appropriate, supporting the US Dollar (USD). However, the weaker-than-expected US GDP data undermine the Greenback. Data released by the Commerce Department on Thursday revealed that the US economy grew by an annualized 2.3% in Q4, slightly below expectations.

Euro FAQs

What is the Euro?

The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily 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 over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What is the ECB and how does it impact the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

How does inflation data impact the value of the Euro?

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

How does economic data influence the value of the Euro?

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all 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 put up 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 economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

How does the Trade Balance impact the Euro?

Another significant data 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 over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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