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EUR/USD edges higher above 1.1600 as US Dollar safe-haven demand fades

  • EUR/USD gains ground to near 1.1620 in Wednesday’s early Asian session. 
  • Trump’s comments that the conflict would be over “very soon” support riskier currencies, such as the Euro. 
  • ECB’s Lagarde said the degree of uncertainty and volatility is very surprising and will take necessary steps to control inflation. 

The EUR/USD pair holds positive ground around 1.1620 during the early Asian session on Wednesday. The Euro (EUR) rebounds from a four-month low of 1.1507 against the Greenback as safe-haven demand softens. The final reading of the Harmonized Index of Consumer Prices (HICP) from Germany and the US Consumer Price Index (CPI) data will be released later on Wednesday. 

US President Donald Trump said on Tuesday that the conflict is “very complete, pretty much” and the military operation is “very far” ahead of its initial four- to five-week timeframe, per Bloomberg. His comments eased concerns about a prolonged war in the Middle East and improved market sentiment. 

However, uncertainty remains as Trump gave no clear timeline for halting attacks that have rattled the Middle East and global markets. Meanwhile, the Israel Defense Forces said that it had unleashed a new wave of strikes on Iran and also launched more missiles at Lebanon. The Israeli military said it's targeting infrastructure that belongs to Iran-backed Hezbollah in the south of the Lebanese capital. Signs of the ongoing tensions in the Middle East could boost safe-haven demand for the US Dollar and create a headwind for the major pair. 

The European Central Bank (ECB) President Christine Lagarde said late Tuesday that the degree of uncertainty and volatility is very surprising, making it hard to manage the situation. She further stated that the central bank will take the necessary measures to control inflation.

Euro FAQs

The Euro is the currency for the 20 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%).

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.

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.

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.

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.

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Lallalit Srijandorn

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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