Euro tumbles after a relief rally as ECB officials warn economic slowdown
- The EUR declines significantly against its currency peers as higher Euro interest rates prompt economic woes.
- The common currency recovered strongly on Tuesday after France pledged to increase spending cuts.
- ECB’s Lane said that a rise in long-term rates will slow growth and reduce pass-through by more than projected.
The Euro (EUR) underperforms its major currency peers on Wednesday, trading almost 0.55% lower at around 177.00 against the Japanese Yen (JPY) in the European trade.
Euro Price Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.56% | 0.25% | 0.00% | 0.09% | 0.17% | 0.27% | 0.17% | |
| EUR | -0.56% | -0.33% | -0.55% | -0.47% | -0.39% | -0.29% | -0.40% | |
| GBP | -0.25% | 0.33% | -0.25% | -0.16% | -0.08% | 0.02% | -0.07% | |
| JPY | 0.00% | 0.55% | 0.25% | 0.09% | 0.17% | 0.26% | 0.17% | |
| CAD | -0.09% | 0.47% | 0.16% | -0.09% | 0.08% | 0.18% | 0.09% | |
| AUD | -0.17% | 0.39% | 0.08% | -0.17% | -0.08% | 0.09% | -0.00% | |
| NZD | -0.27% | 0.29% | -0.02% | -0.26% | -0.18% | -0.09% | -0.08% | |
| CHF | -0.17% | 0.40% | 0.07% | -0.17% | -0.09% | 0.00% | 0.08% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
The major currency faces intense selling pressure after a relief rally on Tuesday, as European Central Bank (ECB) officials warn of economic slowdown due to higher energy prices, tight monetary conditions and surging bond yields.
Lane signals cautious middle path as long-term yields tighten Euro conditions
ECB Chief Economist Philip Lane scores 4.6/10 on FXS Speechtracker, below the historic 5.3/10 baseline, pointing to a slightly more dovish-than-usual tone despite acknowledging growth headwinds from higher long-term rates. The emphasis that underlying inflation has not shifted higher in the medium term, and that demand destruction from elevated energy costs can limit the required adjustment in ECB rates, reinforces a preference for a measured policy stance rather than aggressive tightening.
The “middle path” framing suggests a balanced approach, but the recognition that a second wave of the energy supply shock brings upside inflation risks and downside growth risks keeps a mild hawkish bias alive at the margin. For the Euro, this mix of softer inflation pass-through and constrained growth, offset by lingering energy-driven inflation risks, argues for reduced expectations of near-term rate hikes while limiting scope for pronounced Euro downside as markets price a slower, data-dependent policy trajectory.
ECB official and Finnish Central Bank Governor Olli Rehn also highlighted on Tuesday economic worries in the wake of higher long-term interest rates. “High long-term rates contributing to a slowdown in growth and reduces pass-through of energy prices to other prices and to wages,” Rehn said.
On Tuesday, the Euro saw a relief rally after hitting a fresh Year-Till-Date (YTD) low at around 176.22 against the Japanese currency, as French Presidential candidate Marine Le Pen proposed increasing spending cuts to €140 billion, from €125 billion. This led to a sharp recovery in demand for French bonds and diminished fears of widening spreads in yields with other European nations.
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
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
