EUR/USD middles post-Fed, US GDP data in the pipe
- EUR/USD eased slightly lower on Wednesday after testing the low side.
- The Fed held rates steady, as markets broadly expected.
- With the Fed’s latest rate call out of the way, markets await key US data to see if they were right.
EUR/USD drifted into the low side on Wednesday, dipping below 1.0400 before getting pushed back into touch range of the day’s opening bids. The Federal Reserve (Fed) delivered little of note in its latest rate call, sparking a slight uptick in volatility but little meaningful momentum as Fiber traders await actual changes in interest rates, or at least some signal that they might be coming.
US fourth-quarter Gross Domestic Product (GDP) growth will be reported on Thursday. Median market forecasts anticipate a decrease in annualized GDP growth, with a projection of 2.6% compared to the previous 3.1%. Inflationary pressures remain a concern, and the Q4 GDP Price Index is expected to rise to 2.5% from 1.9%.
December’s Core Personal Consumption Expenditures Price Index (PCEPI) will print on Friday. The monthly PCEPI figure for December is forecast to increase to 0.2% month-over-month from the previous month’s 0.1%, and the annual figure is expected to remain steady at 2.8% year-over-year, still frustratingly above the Fed’s 2% annual target and challenging hopes for an acceleration in the pace of interest rate changes.
The Federal Reserve (Fed) maintained rates on Wednesday, as futures markets had largely anticipated, and Fed Chair Jerome Powell emphasized the Fed's data-dependent approach to rate adjustments. Chair Powell noted that the Federal Open Market Committee (FOMC) is closely monitoring the policies enacted by US President Donald Trump. Still, he denied that the newly elected President has had direct contact with the Fed.
As an independent federal institution, the White House has limited influence over the policy guidance set by the Federal Reserve. Chair Powell reiterated that while inflation is progressing towards the target median levels, the current economic landscape, along with concerns over the substantial trade policies being pursued by President Trump, indicates that the Fed is not in a hurry to change the restrictiveness of policy rates. Rate markets have reduced their expectations for Fed rate cuts in 2025. According to the CME's FedWatch Tool, futures markets are pricing in no changes to the federal funds rate until June at the earliest.
EUR/USD price forecast
EUR/USD is getting hung up in technical congestion at the 50-day Exponential Moving Average (EMA) near 1.0450, but both bulls and bears appear to have run out of gas. Fiber remains capped below the 1.0500 handle, and downside pressure is unable to build momentum below 1.0400.
EUR/USD daily chart
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
Joshua Gibson
FXStreet
Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.
