- EUR/USD weakens near 1.0890 in Tuesday’s Asian session.
- Fed’s Powell said the central bank will not wait until inflation hits the 2% target to cut interest rates.
- The ECB is expected to hold the key interest rate unchanged at its July meeting on Thursday.
The EUR/USD pair trades on a weaker note around 1.0890 during the early Asian trading hours on Tuesday. The renewed US Dollar (USD) demand weighs on the major pair. Traders will keep an eye on US Retail Sales for June and the speech from the Federal Reserve’s (Fed) Adriana Kugler on Tuesday. On Thursday, the European Central Bank (ECB) interest rate decision will take center stage.
Traders increased their bets that the US Federal Reserve (Fed) would cut the interest rate in September. On Monday, Fed Chair Jerome Powell said that the central bank will not wait until inflation hits the 2% target to cut interest rates. “The implication of that is that if you wait until inflation gets all the way down to 2%, you’ve probably waited too long, because the tightening that you’re doing, or the level of tightness that you have, is still having effects which will probably drive inflation below 2%,” said Powell.
Meanwhile, Fed Bank of San Francisco President Mary Daly stated that inflation is cooling down in a way that bolsters confidence it’s on its way to 2%. However, Daly added that more information is needed before making a rate decision. The Fed rate cut expectation is likely to drag the Greenback lower and create a tailwind for EUR/USD.
On the other hand, the ECB is anticipated to hold the main refinancing rate, the interest rate on the marginal lending facility, and the deposit facility unchanged at 4.25%, 4.50%, and 3.75%, respectively, at its July meeting on Thursday. The ECB decided to cut the interest rate for the first time since 2019 in June after nine months of leaving the rate unchanged. Analysts expect that two more rate cuts are on the table this year, in September and December
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD holds steady around 0.6500 ahead of monthly Australian CPI
AUD/USD trades with a positive bias for the third straight day as the Iran-Israel ceasefire continues to erode the safe-haven appeal of the USD, despite Powell's hawkish remarks on Tuesday, and benefit the risk-sensitive Aussie. Traders now look to monthly Australian consumer inflation figures for a fresh impetus ahead of Powell's second day of congressional testimony.
USD/JPY hangs near one-week low amid mixed cues
USD/JPY remains depressed below the 145.00 mark, marking a one-week low following the release of strong Services PPI from Japan, which supports the case for more BoJ rate hikes and underpins the JPY. Meanwhile, the USD struggled to attract buyers after Fed's Powell reaffirmed the wait-and-see rate policy.
Gold price ticks higher on weaker USD; upside seems limited
Gold price is looking to build on the previous day's bounce from sub-$3,300 levels, or over a two-week low, amid the prevalent USD selling bias. However, Powell's hawkish tone could limit deeper USD losses. Furthermore, the Israel-Iran ceasefire optimism might cap the yellow metal.
Circle stock plunges 15%, analysts predict bearish pressure from key long-term headwinds
Circle shares slid 15% on Tuesday following analysts' predictions that declining interest rates and competition from other stablecoin issuers would affect its long-term growth.
Could Iran block the Strait of Hormuz? Why Oil is on edge after US strikes
As the Israel-Iran conflict reaches new heights, an old threat is coming back to haunt the markets: that of the closure of the Strait of Hormuz. This narrow arm of the sea in the Persian Gulf, wedged between Iran to the north and the United Arab Emirates and Oman to the south, is much more than a simple sea passage.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.