EUR/USD steadies as Fed divide offsets shutdown drag

Shared currency consolidates with light data and split Fed rhetoric keeping traders cautious

The US economic docket has been light, featuring speeches by Federal Reserve (Fed) officials, as the Nonfarm Payrolls report for September had been delayed. Vice-Chairman Philip Jefferson said that although it is not ideal not to get job data, they have enough information to do their job.

In the meantime, Dallas Fed Lorie Logan remained hawkish. She said that tariffs have been contributing to inflation and that she is worried that non-housing services’ inflation has been elevated and remains high.

Fed Governor Stephen Miran remained dovish, saying that access to data is important to set monetary policy and he remains hopeful the Fed will have access to economic releases. Nevertheless, he acknowledged that Fed policy should be forward-looking.

Chicago Fed President Austan Goolsbee acknowledged that risks to the dual mandate are balanced, adding that although the markets had priced in rate cuts, the central bank should remain data dependent.

Data-wise, the docket released the Purchasing Managers Index (PMI) for September, by the Institute for Supply Management (ISM) and S&P Global. Prints were mixed, with the ISM revealing that the services survey clung to its expansion/contraction neutral level, while S&P Global showed that the economy expanded.

Daily market movers: EUR/USD rises despite Fed hawkish commentary

Jefferson added that he expects the effects of tariffs on inflation, employment, and economic activity will show in the coming months. He added that the recent cut moved the Fed to a neutral stance. He expects the disinflation process to resume after this year and inflation to return to the 2% target in the coming years.
Logan said that good prices risks are tilted to the upside after the tariff effect fades. She noted that risks that tariffs effects are more prolonged, risks the rise of long-term inflation expectations. She recognized that monetary policy is likely just modestly restrictive.
The ISM Services PMI fell short of expectations in September, slipping from 52 to 50 versus forecasts of 51.7, pointing to a slowing economy. Survey respondents signaled expectations for only “moderate or weak growth,” with the employment sub-index subdued as firms delayed hiring.
By contrast, S&P Global’s Services PMI declined to 54.2, beating forecasts, but below August’s 54.5 reading, highlighting resilience in parts of the sector.
Money markets are fully pricing a 25-basis-point Fed cut at the October 29 meeting, with odds standing at 96%, according to Prime Market Terminal’s interest rate probability tool.

Technical outlook: EUR/USD holds firm waiting for a fresh catalyst

EUR/USD trades sideways above the 1.1700 figure for the fifth consecutive day. Although the pair is bullish biased, traders must clear the current week’s high of 1.1778 before challenging the 1.1800 figure. A breach of the latter will expose the July 1 high of 1.1830 ahead of testing the yearly peak at 1.1918.

Conversely, a move below 1.1700 would target 1.1650, followed by the 100-day SMA near 1.1605.

Euro FAQs

What is the Euro?

The Euro is the currency for the 19 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.