- EUR/USD softens near 1.1620 in Wednesday’s Asian session.
- Political uncertainty in France exerts some selling pressure on the Euro.
- Trump said his administration plans to eliminate a number of government programs as a result of the ongoing shutdown.
The EUR/USD pair attracts some sellers to around 1.1620 during the Asian trading hours on Wednesday. The Euro (EUR) weakens against the US Dollar (USD) amid fears of a political crisis in France. The FOMC Minutes will take center stage later on Wednesday.
The shared currency remains under pressure following the resignation of France's Prime Minister Sebastien Lecornu on Monday. France is now likely to miss a deadline to present its 2026 budget bill, meaning lawmakers will need to pass emergency stopgap legislation to authorize spending from January 1 until a full budget is approved.
Across the pond, the US government shutdown entered its eighth day as US senators failed to pass spending proposals to reopen the federal government. US President Donald Trump said on Tuesday that his administration plans to lay off federal workers if the shutdown persists beyond Monday, adding that he would provide details of job cuts within the next four or five days.
A prolonged US federal government shutdown could undermine the Greenback and help limit the major pair’s losses. Investors are also now pricing in a 25 basis points (bps) rate cut at the Federal Reserve (Fed) meeting in the October meeting, with an additional cut expected in December.
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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