EUR/USD holds steady near 1.0500 ahead of Eurozone PMI release

EUR/USD flat lines around 1.0500 in Thursday’s late American session.
US Initial Jobless Claims rose last week.
Trump’s tariff threats and the ECB’s dovish stance might drag the Euro lower.

Lallalit Srijandorn FXStreet

The EUR/USD pair trades flat near 1.0500 during the late American session on Thursday. However, Trump’s tariff threats might weigh on the Euro (EUR) against the Greenback. Later on Friday, the advanced HCOB Manufacturing and Services PMIs in Germany and the euro bloc will be released.

US Initial Jobless Claims for the week ending February 15 rose to 219K, compared to the previous week's revised tally of 214K (from 213K), the US Department of Labor (DoL) showed Thursday. This figure came in above the market consensus of 215K. The reports have not changed expectations that the Federal Reserve (Fed) will remain on hold for several months.

Meanwhile, Trump said on Wednesday he will announce fresh tariffs within the next month, adding lumber and forest products to previously announced plans to impose duties on imported cars, semiconductors and pharmaceuticals. Trump's latest tariff plans might trigger fears of trade tension, which undermine the Euro in the near term.

Additionally, the rising bets of further interest rate reductions from the European Central Bank (ECB) could contribute to the EUR’s downside. Analysts expect the European Central Bank (ECB) to deliver quarter-point cuts at every meeting until mid-2025. That would bring the deposit rate to 2.0%

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

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.

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