EUR/USD stays below 1.0900 ahead of Eurozone Consumer Confidence

EUR/USD losses ground ahead of the release of EC Consumer Confidence data due on Tuesday.
ECB Vice President Luis de Guindos stated that the inflation data is in line with projections.
Vice President Kamala Harris has secured endorsements as the leading candidate for the presidential nomination.

EUR/USD retraces its recent gains, trading around 1.0870 during the European session on Tuesday. Traders are likely awaiting the release of the leading Consumer Confidence data by the European Commission (EC) later in the day, which is expected to indicate an economic downturn with an expected reading of -13.2 for July, in comparison with the previous -14.0 reading.

In an interview with Europa Press on Tuesday, European Central Bank (ECB) Vice President Luis de Guindos remarked that inflation data is almost exactly as projected. Guindos noted that September is a more suitable month for making decisions compared to July, given the current high level of uncertainty, and emphasized the need for prudence in decision-making.

Most expectations are centered around the possibility of two more cuts by the Federal Reserve (Fed), although scenarios involving one or even three cuts are still in play. Meanwhile, for the European Central Bank (ECB), there is a strong belief that there will be two more reductions in key interest rates by the end of the year.

Read full article: Euro remains on hold below 1.0900 as investors remain cautious

The upside of the US Dollar may be limited as expectations rise for a Federal Reserve (Fed) rate cut in September. Last week, Fed Chair Jerome Powell expressed increased optimism about recent progress on inflation. Additionally, Fed Governor Christopher Waller indicated that the time to lower the policy rate is approaching.

In US politics, Democrats have rallied behind Vice President Kamala Harris as the leading candidate for the presidential nomination. NBC News projected that Harris has secured endorsements from a majority of the Democratic Party’s pledged convention delegates. The threshold for securing the nomination is 1,976 delegates, and NBC estimates that Harris has received support from 1,992 delegates through spoken or written endorsements.

Euro FAQs

What is the Euro?

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%).

What is the ECB and how does it impact the Euro?

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.

How does inflation data impact the value of the Euro?

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.

How does economic data influence the value of the Euro?

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.

How does the Trade Balance impact the Euro?

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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