EUR/USD holds steady above 1.1000 ahead of US Retail Sales data
|- EUR/USD hovers around 1.1010 in Thursday’s Asian session.
- Eurozone GDP climbed 0.3% in the three months to June, matching the estimate.
- US CPI inflation was in line with market consensus.
The EUR/USD pair consolidates its gains near 1.1010 after retracing from the fresh seven-month top during the Asian session on Thursday. The Eurozone Gross Domestic Product (GDP) growth figure for the second quarter (Q2) printed exactly as expected, which lifted the Euro (EUR) against the Greenback.
Data released by Eurostat on Wednesday revealed that the Eurozone economy grew 0.3% QoQ in Q2 compared with the first three months of this year. On an annual basis, the economy expanded 0.6%. Both figures came in with the market consensus and might boost the shared currency in the near term.
However, the upside to GDP growth might be limited. ING economist Bert Colijn said, “With recent numbers casting doubt about service sector strength, expectations for GDP growth in the rest of the year have weakened.” The markets expect the European Central Bank (ECB) to cut rates again in September as the economic outlook remains fragile after it left its key interest rates unchanged at its July meeting.
Across the pond, more signs that inflation in the US is cooling down weigh on the USD and create a tailwind for EUR/USD. The US headline CPI inflation dropped to 2.9% YoY in July from 3% in June. This figure was softer than the estimation, the Labor Department showed on Wednesday. The Core CPI, excluding food and energy, rose 3.2% YoY, compared to a rise of 3.3% seen in July, in line with the market consensus.
Traders await the release of US economic data on Thursday for fresh impetus, including US Retail Sales, weekly Initial Jobless Claims, the Philly Fed Manufacturing Index and Industrial Production. The stronger-than-expected readings could support the Greenback and cap the pair’s upside.
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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