EUR/USD holds positive ground above 1.1650 ahead of German Industrial Production data
- EUR/USD posts modest gains near 1.1665 in Thursday’s Asian session.
- Traders ramped up bets on Fed rate cuts after weaker US employment data for July.
- Eurozone Retail Sales improved to 3.1% YoY in June, stronger than expected.
The EUR/USD pair trades with mild gains around 1.1665 during the Asian trading hours on Thursday, bolstered by a weaker US Dollar (USD). The German June Industrial Production, Eurozone Economic Bulletin and US weekly Jobless Claims will be released later on Thursday.
The potential upside for the Greenback might be capped amid rising expectations of a Federal Reserve (Fed) rate cut and concerns over the US central bank’s independence. Traders will focus on the usual US Initial Jobless Claims, which are expected to rise to 221,000 for the week ended August 2. If the report shows a stronger-than-expected outcome, this could lift the USD against the NZD in the near term.
Fed funds futures traders ramped up bets on rate cuts after data last Friday showed US employment growth was weaker than expected in July. According to the CME FedWatch tool, Fed funds futures traders are now pricing in a 94% odds of a 25 basis point (bps) cut at the September meeting, up from 48% a week ago.
Traders will closely watch the developments surrounding Fed governor’s replacement. Trump said on Tuesday that he will decide on a short-term replacement for Fed Governor Adriana Kugler, who resigned last Friday. He will also soon reveal a nominee for the next Fed Chair. Trump ruled out US Treasury Secretary Scott Bessent as a candidate to succeed current Chairman Jerome Powell, whose term expires in May 2026.
Across the pond, Germany’s Factory Orders softened in June, while Retail Sales for the Eurozone improved in the twelve months to June data. Traders will keep an eye on the German June Industrial Production and Eurozone Economic Bulletin for fresh impetus.
Euro FAQs
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%).
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
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.
