Euro steadies below 1.1600 as hawkish Fed rhetoric limits gains
- EUR/USD trades on a flat note around 1.1590 in Thursday’s early Asian session.
- Traders raise their bets on a September rate hike after Fed Warsh’s speech.
- ECB’s Makhlouf said the central bank must be prepared to lift interest rates further.
The EUR/USD pair holds steady near 1.1590 during the early Asian session on Thursday. The potential upside for the major pair might be limited amid hawkish Federal Reserve (Fed) expectations and escalating conflict in the Middle East. The US August ISM Services Purchasing Managers Index (PMI) report is due on Thursday. On Friday, traders will closely monitor the US Nonfarm Payrolls (NFP) data.
Fed Chair Kevin Warsh warned last week that policymakers may need to tighten again if inflation fails to move convincingly towards 2%. His hawkish remarks could lift the USD and act as a headwind for the pair. Expectations of a September Fed rate hike rose to 62.3%, up from below 40% before the speech, according to the CME FedWatch tool.
US President Donald Trump said on Wednesday that strikes on Iran would likely be short-lived, reiterating the US controls the Strait of Hormuz. Meanwhile, Supreme National Security Council Secretary Mohsen Rezaei said Washington will soon witness Tehran’s “new strategy” for war. Rising tensions in the Middle East could boost safe-haven flows, supporting the Greenback.
Across the pond, European Central Bank (ECB) policymaker Gabriel Makhlouf said the central bank must not shy away from more interest rate hikes if inflation “starts moving in the wrong direction.” ECB Governing Council member Joachim Nagel said on Wednesday that markets see over a 95% chance of a September rate hike.
Euro sentiment sours as oil recovery revives terms of trade worries
Strategists at Scotiabank highlight that the latest bout of Euro weakness has aligned with a rebound in energy markets, noting that “the renewed deterioration looks to have coincided with the latest recovery in oil prices, sparking concerns about the euro area’s terms of trade as a major energy importer.” They suggest that the shift in commodity dynamics is undermining support for EUR even as yield spreads remain broadly favourable, reinforcing the market’s increasingly bearish tone toward the single currency.
Technical Analysis: EUR/USD is well-supported above the 100-day SMA, with neutral RSI
In the daily chart, EUR/USD sits on a pivot around the day’s opening level and holds above the 100-day simple moving average (SMA), suggesting a mild underlying bid, yet it remains capped beneath the Bollinger Bands’ middle line. The Relative Strength Index (RSI) at 51.80 is neutral, hinting that near-term momentum is balanced and leaving scope for either a modest continuation higher or further consolidation around current levels.
On the topside, initial resistance is seen at the Bollinger middle band around 1.1605, ahead of a stronger barrier at the upper Bollinger band near 1.1708. On the downside, immediate support is defined by the 100-day SMA at 1.1565, with a deeper cushion at the lower Bollinger band around 1.1500, where buyers would be expected to show more interest if the pair extends its pullback.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Euro FAQs
The Euro is the currency for the 20 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.
