EUR/USD hovers near 1.1400 ahead of Eurozone HICP, US Nonfarm Payrolls
- EUR/USD steadies as traders await caution ahead of the Eurozone Harmonized Index of Consumer Prices and US NFP data.
- The US Dollar advanced after the PCE report indicated that the Fed may delay rate cuts until at least October.
- Deutsche Bank expects no further rate cuts in the near future.
EUR/USD remains steady after mild gains registered in the previous session, trading around 1.1420 during the Asian hours on Friday. The pair holds ground ahead of the Eurozone Harmonized Index of Consumer Prices (HICP) data due later in the day. Traders will shift their focus toward the United States (US) Nonfarm Payrolls (NFP) due later in the North American session.
The recent US data showed on Thursday that inflation increased in June as tariffs supported prices for imported goods such as household furniture and recreation products. Core US Personal Consumption Expenditure Price Index (PCE) inflation ticked higher in June, rising 0.3% MoM as many market participants had expected. On an annualized basis, PCE inflation accelerated to 2.6% YoY, outrunning the expected hold at 2.5%.
The US PCE report suggests that price pressures would increase in the second half of the year and delay the US Federal Reserve (Fed) from cutting interest rates until at least October. This has provided support for the US Dollar and kept the EUR/USD pair under pressure.
European Union (EU) inflation seems to remain around the European Central Bank (ECB) 2% goal in July, following the release of the Consumer Price Index (CPI) in Germany, France, Italy, and Spain. Germany’s inflation came to 1.8% against the 2% prior, while figures in Italy eased from 1.8% to 1.7%. Prices in France were unchanged at 0.9% above estimates of 0.8% and Spanish inflation rose from 2.3% to 2.7%. Deutsche Bank does not anticipate any further rate cuts and signals that the next move could be a hike by the end of 2026.
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
Akhtar Faruqui
FXStreet
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.
