Euro strengthens ahead of Germany’s Trade Balance data

EUR/USD rises as mixed Fed Minutes weaken the US Dollar.
The US Dollar may rebound as US-Iran tensions boost expectations that the Fed will keep interest rates higher for longer.
Iranian Speaker Mohammad Bagher Ghalibaf warned Washington that any further American action would trigger immediate retaliation.

Akhtar Faruqui FXStreet

EUR/USD extends its gains for the second successive day, trading around 1.1430 during the Asian hours on Thursday. The Euro (EUR) receives support against the US Dollar (USD) ahead of Germany’s Trade Balance data release later in the day. Traders will likely shift their focus to Friday’s Harmonized Index of Consumer Prices (HICP) data.

The US Dollar (USD) underperforms as the Federal Reserve’s (Fed) June Meeting Minutes underscored a widening rift among policymakers during Kevin Warsh’s debut meeting as FOMC Chairman on June 16–17. While a portion of the committee anticipated that the benchmark rate, currently holding at a target range of 3.50% to 3.75%, would likely end the year unchanged or lower, a hawkish contingent strongly argued that persistent price pressures would require a rate hike by year-end.

However, this internal friction has reinforced market expectations that the US central bank will keep interest rates higher for longer to combat stubborn inflation. Reflecting this hawkish shift, the CME FedWatch tool showed that swap traders have pushed the probability of a rate hike at the upcoming Fed meeting past 30%, up sharply from less than 20% just last week.

The Greenback's downside may be cushioned by a surge in safe-haven demand amid escalating geopolitical tensions between the US and Iran. Following two days of renewed US military strikes, Iranian Parliament Speaker Mohammad Bagher Ghalibaf issued a sharp warning to Washington, declaring that any further American action would trigger immediate retaliation. Crucially, Ghalibaf reiterated that access to the strategic Strait of Hormuz remains firmly under Iranian control, stoking fresh market anxieties over energy-driven supply shocks and resurgent global inflation.

Euro FAQs

What is the Euro?

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%).

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

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.

GBP/USD strengthens to near 1.3400 as UK political risk fades

The GBP/USD pair gathers strength near 1.3395 during the Asian trading hours on Thursday, bolstered by fading domestic political uncertainty. However, hawkish minutes from the Federal Reserve and renewed tensions between the US and Iran might support the US Dollar and cap the upside for the major pair.

EUR/USD sticks to positive bias above 1.1400; Mideast tensions cap gains

The EUR/USD pair attracts some buyers for the second straight day, though it lacks follow-through and remains confined within the previous day's range during the Asian session on Thursday. Spot prices currently trade around the 1.1420 area, up less than 0.10% for the day, and remain at the mercy of the US Dollar price dynamics.

Gold sees more pain as Iran tensions revive inflation fears

Gold price reflects signs of softness on Thursday, trading 0.5% lower at around $4,056 during the Asian trading session. The precious metal is under pressure as Middle East hostilities have revived fears of high global inflation, a scenario that discourages major central banks from easing monetary conditions. This framework bodes well for interest-bearing assets, but diminishes the appeal of non-yielding assets, such as Gold.

Ripple and Stellar extend downside as weakening technicals

Ripple and Stellar extend losses on Thursday, correcting over 6% and 10%, respectively, so far this week. XRP falls below $1.090, while XLM posts a fifth consecutive day of correction and closes below key support levels.

2.50%: Why the Kiwi's first hike in three years is a wager on a number nobody can see

The Reserve Bank of New Zealand (RBNZ) raised the Official Cash Rate (OCR) by 25 basis points to 2.50% at 02:00 GMT on Wednesday, its first hike in three years and the moment the bank that cut deeper than any G10 peer last cycle turned to face the other way.

Bye, forward guidance: How to trade when central banks choose silence

Central banks have spent years telling markets what might come next. Now, traders face the possibility that they say a lot less. From the Federal Reserve to the European Central Bank and the Bank of England, policymakers are pushing back against forward guidance.