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- EUR/USD edges higher above 1.0900, US PPI data looms
EUR/USD edges higher above 1.0900, US PPI data looms
- EUR/USD gains ground near 1.0940 in Tuesday’s Asian session.
- The odds for a 50 bps rate cut by the Fed might undermine the USD and create a tailwind for the pair.
- Traders await the German August ZEW survey and the US July PPI report for fresh impetus.
The EUR/USD pair trades in positive territory around 1.0940 during the Asian session on Tuesday. The major pair posts modest gains amid the consolidation of the Greenback. The release of the US Producer Price Index (PPI) will be in the spotlight later on Tuesday. The headline PPI is estimated to ease to 0.1% month-over-month in July from 0.2% in the previous reading, while the Core PPI is forecasted to drop to 2.7% YoY in July from 3.0% in June.
Markets have fully priced in the chance of at least 25 basis points (bps) rate cuts in September and a strong likelihood that the Fed will lower by a full percentage point by the end of the year. Morgan Stanley analysts stated on Monday their forecast for a 25 basis point (bps) rate cut by the Federal Reserve (Fed) in September, maintaining a stance despite the current global market downturn. The rising bets on the Fed rate cut are likely to weigh on the US Dollar (USD) and create a tailwind for EUR/USD for the time being.
Across the pond, the German ZEW Expectations are expected to arrive at 31.8 in August versus 41.8 in July, while the current assessment is expected to show -75.0 in August versus -68.9 prior. The weaker-than-expected data will contribute to a negative outlook in the economy and might keep the European Central Bank (ECB) in easing mode, with a September 12 rate cut fully priced in.
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.
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