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EUR/USD gathers strength above 1.1900 ahead of US January NFP data

  • EUR/USD strengthens around 1.1915 in Wednesday’s early European session.
  • The US employment report for January will be the highlight later on Wednesday. 
  • The ECB is in no hurry to change rates, maintaining its data-dependent approach. 

The EUR/USD pair gains traction to near 1.1915 during the early European session on Wednesday, bolstered by a weaker US Dollar (USD). Markets might turn cautious later in the day ahead of the delayed US employment report for January, which will offer clues on the path of Federal Reserve (Fed) policy.

The weaker-than-expected US Retail Sales data dragged the Greenback lower and acted as a tailwind for the major pair. US Retail Sales remained unchanged at $735 billion in December, according to the US Census Bureau on Tuesday. This reading followed the 0.6% rise seen in November and came in below the market consensus for an increase of 0.4%. On a yearly basis, Retail Sales rose 2.4% in December, versus 3.3% prior.

Fed Bank of Cleveland President Beth Hammack said that interest rates could be on an extended hold while officials evaluate incoming economic data. Meanwhile, Dallas Fed President Lorie Logan noted that she’s hopeful inflation will continue to come down, though it would take “material” weakness in the labor market for her to support more rate cuts.

Markets expected US Nonfarm Payrolls (NFP) to increase by 70,000 in January. The Unemployment Rate is forecast to remain steady at 4.4%. Any signals of recovery in the US job market might boost the USD against the shared currency in the near term. 

On the Euro’s front, the European Central Bank (ECB) decided to hold its benchmark interest rate steady at 2.0% for the fifth meeting in a row last week, as widely expected. During the press conference, ECB President Christine Lagarde said that the central bank would maintain its data-dependent and “meeting-by-meeting approach” and would not be “precommitting to a particular rate path.” Around 85% of economists surveyed by Reuters in their January poll said the ECB would keep the interest rates steady over the rest of 2026. 

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.

Author

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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