EUR/USD extends losses below 1.1750 ahead of Eurozone Consumer Confidence
- EUR/USD loses ground as the US Dollar continues its winning streak on Monday.
- The Greenback receives support as Fed Chair Powell doesn't feel the need to move quickly on rates.
- Preliminary Eurozone Consumer Confidence for September is expected at -15.4, slightly improving from the previous reading of -15.5.
EUR/USD continues its losing streak for the fourth consecutive session, trading around 1.1730 during the Asian hours on Monday. The pair depreciates as the US Dollar (USD) remains stronger after the Federal Reserve (Fed) delivered an expected rate cut last week but indicated no rush to lower borrowing costs quickly in the coming months. Traders will likely observe the Eurozone Consumer Confidence and Fedspeak later in the day.
Fed Chair Jerome Powell said during the post-meeting press conference that growing signs of weakness in the labor market to explain why officials decided it was time to cut rates after holding them steady since December amid concerns over tariff-driven inflation. Moreover, Powell also said that he doesn't feel the need to move quickly on rates and that the Fed is in a meeting-by-meeting situation regarding the outlook for interest rates. The Fed's rate projection, or the so-called "dot plot," showed a forecast of two more rate cuts this year.
The EUR/USD pair also faced challenges as the Euro (EUR) struggled, with hundreds of thousands protesting across major French cities last week, urging President Emmanuel Macron and newly appointed Prime Minister Sebastien Lecomu to abandon spending cut plans introduced by former Prime Minister François Bayrou.
European Central Bank (ECB) Governing Council member Mario Centeno said on Friday that the “next move is still likely to be a rate cut,” adding that inflation cannot remain below 2% for too long, while noting that risks to inflation remain tilted to the downside.
Euro FAQs
The Euro is the currency for the 19 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.
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