EUR/USD edges lower to mid-1.1300s; looks to US PCE Price Index for fresh impetus

EUR/USD ticks lower on Thursday and stalls the previous day’s bounce from over a one-week low.
A turnaround in the global risk sentiment lends some support to the USD and weighs on the pair.
Traders now look to the US PCE Price Index for some impetus ahead of the ECB next Thursday.

Haresh Menghani FXStreet

The EUR/USD pair struggles to capitalize on the previous day's solid bounce from the 1.1200 neighborhood, or a one-and-a-half week low, and trades with a mild negative bias during the Asian session on Friday. Spot prices currently hover around the mid-1.1300s, down nearly 0.15% for the day, though the downside remains cushioned.

Following the previous day's dramatic turnaround, the US Dollar (USD) attracts some dip-buyers amid the flight to safety and turns out to be a key factor acting as a headwind for the EUR/USD pair. A federal appeals court paused a separate trade court ruling and reinstated US President Donald Trump's sweeping trade tariffs late Thursday. This adds a layer of uncertainty in the markets and revives demand for traditional safe-haven assets.

The USD uptick, however, lacks bullish conviction amid concerns about the worsening US fiscal condition and expectations that the Federal Reserve (Fed) will lower borrowing costs again in 2025. The shared currency, on the other hand, continues to draw some support from US President Donald Trump's decision to delay the imposition of tariffs on the European Union (EU), which contributes to limiting the downside for the EUR/USD pair.

Moving ahead, the spotlight turns to the release of the US Personal Consumption Expenditure (PCE) Price Index. The crucial data will play a key role in influencing expectations about the Fed's rate-cut path, which, in turn, will drive the USD demand and provide some impetus to the EUR/USD pair heading into the weekend. The market focus will then shift to the crucial European Central Bank (ECB) monetary policy meeting next Thursday.

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

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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