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EUR/USD holds position above 1.0900 after breaking its losing streak

  • EUR/USD breaks its three-day losing streak due to improved risk-on mood.
  • The US Dollar appreciated as Initial Jobless Claims fell to 233K, falling below the expected 240K.
  • Traders expect Germany's Harmonized Index of Consumer Prices to remain steady in July.

EUR/USD halts its three-day losing streak, trading around 1.0920 during the Asian session on Friday. The upside of the EUR/USD pair could be attributed to the downbeat US Dollar (USD), which could be attributed to heightened expectations of a dovish policy outlook by the US Federal Reserve (Fed).

However, the EUR/USD pair faced challenges as US Initial Jobless Claims fell to 233,000 for the week ending August 2, coming in below the market expectation of 240,000. This decline follows an upwardly revised figure of 250,000 for the previous week, which had been the highest in a year.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against the other six major currencies, retraces its recent gains, trading around 103.20. Additionally, the decline in the US Treasury yields put pressure on the Greenback standing at 4.01% and 3.97%, respectively, at the time of writing.

On Thursday, Kansas City Fed President Jeffrey Schmid stated that reducing monetary policy could be "appropriate" if inflation remains low. Schmid noted that the current Fed policy is "not that restrictive" and that while the Fed is close to its 2% inflation goal, it has not yet fully achieved it, per Reuters.

On the EUR front, the European Central Bank (ECB) policymaker Olli Rehn said on Wednesday that the central bank can continue cutting interest rates if the inflation trend is slowing in the near future. Rehn said "Inflation continues to slow down but the path to the 2% target remains bumpy this year," per Reuters.

Traders await Germany's Harmonized Index of Consumer Prices (HICP) scheduled for release on Friday. Market expectations are steady, with forecasts of a 2.6% year-on-year increase and a 0.5% month-on-month rise in July.

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

Akhtar Faruqui

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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