Euro remains depressed after US manufacturing data, Fed Waller on focus
|- The Euro extends its reversal as the safe-haven US Dollar appreciates.
- Cooling hopes of interest rate cuts and growing geopolitical risks have crushed investors’ appetite for risk.
- ECB policymakers and German CPI figures push back monetary easing expectations.
The Euro (EUR) is under increasing bearish pressure on Tuesday. The risk-averse sentiment – with investors paring back hopes of rate cuts in 2024 – and the explosive situation in the Middle East, are rushing traders into safe assets and weighing on the common currency.
The sharper-than-expected deterioration of the NY Fed Empire State Manufacturing Index has failed to dent the USDollar's bullish momentum. Investors' focus is now on the Fed Waller a board member and a hawk, whose dovish comments in December triggered a significant Dollar slide and boosted hopes of interest rate cuts in the coming months.
In the Eurozone, the hawkish comments from the European Central Bank (ECB) Governors François Villeroy de Galhau and Joachim Nagel have given some support to the common currency. Beyond that, German CPI accelerated in December, offsetting concerns about the weak GDP figures seen on Monday, and the German ZEW survey reported an improvement in the German and Eurozone economic sentiment in January.
Nevertheless, the market sentiment remains sour. Investors are paring back hopes of aggressive rate cuts and the deterioration of the situation in the Red Sea, which is threatening to disrupt global commerce, and boost transport costs, is weighing risk appetite further. This is acting as a tailwind for the US Dollar.
Daily digest market movers: Euro depreciates on risk-averse trading
- The Euro is losing ground on Tuesday, weighed by USD strength, although it remains within the last two weeks’ trading range.
- The New York Fed Empire State Manufacturing Index deteriorated to a -43.7 reading in January from -14.5 in December, market analysts had anticipated a mild improvement to -5.
- Earlier on Tuesday, ECB Governours Villeroy and Nagel reiterated that it is still too early to claim victory against inflation.
- The final estimate of the German Consumer Prices Index (CPI) for December confirmed that prices grew by 3.7% on the year. This marks an uptick from the 3.2% increase seen in November and provides further evidence that bringing inflation to 2% will take an additional effort.
- The German ZEW Economic Sentiment Index improved above expectations in January, yet with no impact on a weaker Euro, suffering under the risk-averse market.
- Later today, Fed’s Governor Christopher Waller’s comments are likely to increase US Dollar’s volatility.
- The highlight on the US Calendar this week is Wednesday’s Retail Sales data, which are expected to have increased moderately in December.
- US consumption data will provide context to the speeches of Fed’s policymakers Michael Barr and Michelle Bowman.
- In the Eurozone calendar on Wednesday, Eurostat is expected to confirm that the CPI accelerated to 2.9% year-on-year in December from 2.4% in November, while the Core inflation eased to a 3.4% yearly pace from the previous 3.6% rate.
Technical Analysis: EUR/USD is testing support at the bottom of the recent range at 1.0875
The EUR/USD has pierced the trendline support from early November lows at 1.0910, and is testing support art 1.0875 which, so far, remains intact.
A clear move below here would activate a head and shoulders (H&S) pattern, a common trend-change figure, and increase bearish pressure towards 1.0730. The measured target of the H&S pattern is the 78.6% Fibonacci retracement of the late 2023 rally.
On the upside, the reverse trend line at 1.0910 is likely to offer resistance ahead of the 1.1000 area.
Euro price today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.60% | 0.68% | 0.45% | 0.78% | 0.61% | 0.61% | 0.60% | |
| EUR | -0.60% | 0.08% | -0.15% | 0.16% | -0.01% | 0.01% | -0.01% | |
| GBP | -0.69% | -0.08% | -0.24% | 0.10% | -0.10% | -0.09% | -0.09% | |
| CAD | -0.47% | 0.13% | 0.22% | 0.32% | 0.14% | 0.14% | 0.12% | |
| AUD | -0.79% | -0.19% | -0.10% | -0.34% | -0.18% | -0.17% | -0.19% | |
| JPY | -0.63% | -0.03% | 0.06% | -0.18% | 0.16% | -0.01% | -0.03% | |
| NZD | -0.62% | -0.01% | 0.09% | -0.16% | 0.18% | 0.00% | -0.02% | |
| CHF | -0.60% | 0.01% | 0.10% | -0.15% | 0.18% | 0.00% | 0.01% |
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 Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Fed FAQs
What does the Federal Reserve do, how does it impact the US Dollar?
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
How often does the Fed hold monetary policy meetings?
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
What is Quantitative Easing (QE) and how does it impact USD?
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
What is Quantitative Tightening (QT) and how does it impact the US Dollar?
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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