EUR/USD remains subdued near 1.1650, awaits Ukraine-Russia developments, EU economic data
- EUR/USD struggles despite positive signals toward a possible resolution of the Ukraine-Russia war.
- President Trump has begun preparatory steps for a trilateral meeting with Russian President Putin and Ukrainian President Zelenskyy.
- The Euro could strengthen if the Ukraine-Russia war is resolved swiftly, given the EU's heavy reliance on energy imports.
EUR/USD remains subdued for the second successive session, trading around 1.1660 during the Asian hours on Tuesday. The pair struggles as the US Dollar receives support from positive signals toward a possible resolution of the Ukraine-Russia war, following the Trump-Zelenskyy summit on Tuesday.
The summit was also attended by key European leaders, including French President Emmanuel Macron, German Chancellor Friedrich Merz, European Commission President Ursula von der Leyen, and UK Prime Minister Keir Starmer.
US President Donald Trump announced has begun the preparation steps for a trilateral meeting with Russian President Vladimir Putin, Ukrainian President Volodymyr Zelenskyy. Trump added that Putin had agreed Russia would consider security guarantees and that discussions on possible territorial exchanges were needed.
The downside of the EUR/USD pair could be restrained as the US Dollar may face challenges as stronger-than-expected US producer inflation and retail sales data keep intact the dovish tone surrounding the US Federal Reserve’s (Fed) policy outlook. CME’s FedWatch tool suggests that markets are pricing in 84% odds of a 25 basis point Fed rate cut in September. Traders will likely observe the Jackson Hole Economic Policy Symposium later in the week. Fed Chair Jerome Powell’s speech will also be eyed for guidance on the Fed’s September policy outlook.
The Euro (EUR) may gain ground if there is a quick resolution to end the Ukraine-Russia war, as the European Union (EU) is a major importer of energy products. The EU’s economic docket will feature the release of EU inflation data for July, HCOB Flash PMIs for August, and Germany's Gross Domestic Product (GDP) figures later in the week.
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.
