- EUR/USD weakens as traders remain cautious ahead of key US economic figures.
- Atlanta Fed President Raphael Bostic said the Fed should not maintain a restrictive policy stance for too long.
- Euro loses ground as chances of ECB rate cuts in September increase.
The EUR/USD pair edged lower to near 1.1070 during the Asian session on Thursday. The EUR/USD pair’s decline could be attributed to the strengthening of the US Dollar (USD) amid rising US Treasury yields.
However, the dollar weakened following the release of the US JOLTS job openings for July, which missed expectations and indicated a further slowdown in the labor market. The number of job openings fell to 7.673 million in July, from 7.910 million in June. This marked the lowest level since January 2021 and was below the market expectation of 8.10 million.
Traders now await the ISM services PMI and US initial jobless claims data scheduled for release on Thursday. Focus will turn to Friday’s US non-farm payrolls (NFP) for further clues on the potential size of an expected rate cut by the Federal Reserve (Fed) this month.
Atlanta Federal Reserve President Raphael Bostic said on Wednesday that the Fed is in a favorable position but added that they should not maintain a restrictive policy stance for too long, according to Reuters. FXStreet’s FedTracker, which measures the tone of Fed officials’ speeches on a dovish-to-hawkish scale from 0 to 10 using a custom AI model, rated Bostic’s words as neutral with a score of 4.6.
In the eurozone, the Producer Price Index rose by 0.8% month-on-month in July, the largest increase since December 2022. This follows an upwardly revised increase of 0.6% in June and significantly exceeds market forecasts of 0.3%. However, the eurozone services PMI declined to 52.9 in August, from 53.3 the previous month. Meanwhile, the composite PMI fell to 51.0, missing expectations and falling below the previous reading of 51.2, which was expected to remain unchanged.
The Euro may face challenges amid strong speculation that the European Central Bank (ECB) will cut interest rates in September. This would mark the second interest rate cut by the ECB since it began moving towards policy normalisation in June. Policymakers remain confident that inflation will gradually return to the bank’s 2% target by 2025.
Euro FAQs
The Euro is the currency of the 20 European Union countries that belong to the Eurozone. It is the second most traded currency in the world, behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily volume of over $2.2 trillion per day. EUR/USD is the most traded currency pair in the world, accounting for an estimated 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB), based in Frankfurt, Germany, is the reserve bank of the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s main mandate is to maintain price stability, which means controlling inflation or stimulating growth. Its main instrument is to raise or lower interest rates. Relatively high interest rates – or the expectation of higher rates – generally benefit the Euro and vice versa. The Governing Council of the ECB takes monetary policy decisions at meetings held eight times a year. Decisions are taken by the heads of the national banks of the Eurozone and six permanent members, including ECB President Christine Lagarde.
Eurozone inflation data, as measured by the Harmonised Index of Consumer Prices (HICP), is an important econometric data point for the euro. If inflation rises more than expected, especially if it exceeds the ECB’s 2% target, the ECB is forced to raise interest rates to bring inflation back under control. Relatively high interest rates compared to their peers usually benefit the euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases measure the health of the economy and can influence the Euro. Indicators such as GDP, manufacturing and services PMIs, employment and consumer sentiment surveys can 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 can encourage the ECB to raise interest rates, which will directly strengthen the Euro. Conversely, if economic data is weak, the Euro is likely to fall. Economic data from the four largest Eurozone economies (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone economy.
Another important output 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 during a given period. If a country produces highly sought-after export products, its currency will appreciate due to the additional demand created by foreign buyers who wish to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
