EUR/USD weakens as ECB officials support further policy easing
|- EUR/USD sees more downside below 1.0500 as ECB policymakers are concerned about growing risks to Eurozone economic growth.
- ECB’s Villeroy supports more rate cuts as the balance of risks to inflation and growth is shifting to the downside.
- Investors will pay close attention to the flash Eurozone/US PMI data for November on Friday.
EUR/USD remains vulnerable above the psychological support of 1.0500 in North American trading hours on Thursday. The major currency pair faces selling pressure due to the Euro’s weak performance on expectations that the European Central Bank (ECB) could accelerate its policy-easing cycle.
The ECB is widely anticipated to cut its Deposit Facility Rate again by 25 basis points (bps) to 3% in the December meeting and is expected to head towards the neutral range faster in 2025 as market participants worry about the Eurozone’s economic outlook.
Investors expect the European Union (EU) to go through a rough time when US President-elect Donald Trump takes office and implements his economic agenda, which would lead to a potential global trade war, especially with the Eurozone and China. In his election campaign, Trump mentioned that the euro bloc will "pay a big price" for not buying enough American exports.
ECB officials are also worried about growing risks to Eurozone economic growth and want the central bank to continue reducing the degree of monetary policy tightness through interest rate cuts. ECB policymaker and the Governor of the Bank of France François Villeroy de Galhau said on Wednesday in a speech in Tokyo, “The balance of risks on growth and inflation is shifting to the downside.” Villeroy added that the pace of future ECB rate cuts should be guided by "agile pragmatism". However, he ruled out the significant impact of US tariffs on the Eurozone’s inflation outlook.
In Thursday's European session, ECB Governing Council member Yannis Stournaras advised that the central bank should continue reducing interest rates till they reach nearly 2%, which he also sees as close to a neutral rate. For the December meeting, Stournaras supports a 25 bps interest rate cut.
To know about the current status of economic health and forward demand, investors will focus on the flash HCOB Purchasing Managers Index (PMI) data for November for the Eurozone and its major nations, which will be released on Friday. Flash readings are expected to show that the overall private business activity remains at the expansionary borderline.
Euro PRICE Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.04% | -0.01% | -0.76% | -0.14% | -0.36% | -0.07% | -0.14% | |
| EUR | -0.04% | -0.05% | -0.78% | -0.18% | -0.40% | -0.11% | -0.18% | |
| GBP | 0.00% | 0.05% | -0.70% | -0.13% | -0.36% | -0.06% | -0.13% | |
| JPY | 0.76% | 0.78% | 0.70% | 0.61% | 0.39% | 0.66% | 0.61% | |
| CAD | 0.14% | 0.18% | 0.13% | -0.61% | -0.22% | 0.07% | 0.00% | |
| AUD | 0.36% | 0.40% | 0.36% | -0.39% | 0.22% | 0.29% | 0.23% | |
| NZD | 0.07% | 0.11% | 0.06% | -0.66% | -0.07% | -0.29% | -0.07% | |
| CHF | 0.14% | 0.18% | 0.13% | -0.61% | -0.00% | -0.23% | 0.07% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
Daily digest market movers: EUR/USD weakens as Fed rate cut bets ease
- EUR/USD declines as the US Dollar (USD) holds its Wednesday recovery and strives to refresh yearly highs in Thursday's North American session. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, gathers strength to break above the immediate high of 107.00. The Greenback had been performing stronger on Donald Trump’s victory in both houses as he will be able to implement his trade and tax policies smoothly.
- The consequences of Trump’s policies will be inflationary for the United States (US) economy, restricting the Federal Reserve (Fed) from cutting interest rates deeply. The impact can be seen in market speculation for Fed interest rate cuts in December, which has been diminished significantly. Fed’s probability for lowering borrowing rates next month has eased to 56% from 73% a week ago, according to the CME FedWatch tool.
- Market experts have also upwardly revised the Federal Funds Rate target for 2025. Bank of America (BofA) has upped its terminal fed funds rate forecast to 3.75%-4.00% from 3.00%-3.25%.
- Going forward, the US Dollar will be guided by the preliminary S&P Global PMI data for November, which will be published on Friday. Economists expect the overall private sector activity to have improved.
- Meanwhile, US Initial Jobless Claims for the week ending November 15 have come in lower than expected. Individuals claiming jobless benefits for the first time were 213K against estimates of 220K.
Technical Analysis: EUR/USD sees support near 1.0500
EUR/USD strives to hold the key support of 1.0500. The outlook of the major currency pair remains bearish as all short- to long-term Exponential Moving Averages (EMAs) are declining.
The 14-day Relative Strength Index (RSI) oscillates in the bearish range of 20.00-40.00, adding to evidence of more weakness in the near term.
Looking down, the pair is expected to find a cushion near the October 2023 low at around 1.0450. On the flip side, the round-level resistance of 1.0600 will be the key barrier for the Euro bulls.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger 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.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
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