What do Eurozone growth and US prices hold for the Euro at an 18-month low?

EUR/USD slides to an 18-month low after breaching its October trough.
The prospect of a larger December Fed rate hike widens the policy gap with the ECB.
Friday brings Eurozone growth and employment data, followed by US producer prices.

Selling pressure driven by the US side of EUR/USD has pushed the Euro to an 18-month low after three consecutive daily declines. From close to 1.1200 at Monday's close, the pair has slipped to about 1.1050, having touched a session low marginally below that level. The first daily close beneath October's lows came on Wednesday.

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A half-point increase should remain an option for December 9, Fed Governor Waller said on November 10, when US inflation also exceeded forecasts. Futures assign roughly nine chances in ten to a quarter-point rise, with the remaining probability attached to a half-point move. Thursday's jobless claims, at 200K versus expectations of 195K, left that pricing unchanged. With the European Central Bank (ECB) deposit rate at 2.50% and the Fed's rate at 3.75%-4.00%, every upward adjustment in rate pricing increases a differential already at least 1.25 percentage points wide.

Thursday also saw gains in Crude Oil: Brent advanced more than 3% following Iranian state media reports of an attack on Sirik in southern Iran. Nearly all the Crude Oil consumed by the Eurozone is imported and paid for in Dollars. During the same move, the Dollar Index hit an 18-month high; the Euro's decline accounts for most of the index's gains since August.

Which data releases are due next?

Friday's schedule begins with a speech by ECB Executive Board member Schnabel at 07:10 GMT. At 10:00 GMT, third-quarter Eurozone growth is expected to remain at 0.4% quarter on quarter and 1.3% year on year, while employment is forecast to rise 0.2%, following 0.1%. The final October inflation reading follows at 10:00 GMT on Wednesday, November 18. All these releases precede the ECB's December decision.

At 13:30 GMT on Friday, US producer prices are forecast to show a monthly rise of 0.4%, following 1.3%, and an annual increase of 6.6%, compared with 6.3% previously. Retail sales data are scheduled for 13:30 GMT on Tuesday, November 17, with no change expected after growth of 0.8%. Both releases will inform the size of the Fed's December rate move.

What does the EUR/USD chart show?

Thursday's high reached the lower edge of the 1.1100-1.1300 range that had contained the pair since October 2, but failed to take it back into that band. EUR/USD has now lost about 5.5% from its late-August peak just above 1.1700. None of the bars shown since the chart began in the middle of July has traded at a lower level.

Daily price chart for EUR/USD

Euro: frequently asked questions

Which countries use the Euro, and how widely is it traded?

Used by the 20 European Union countries in the Eurozone, the Euro ranks second only to the US Dollar among the world's most actively traded currencies. Its share of all foreign exchange transactions stood at 31% in 2022, with average daily turnover exceeding $2.2 trillion. With an estimated 30% share of all transactions, EUR/USD is the world's most actively traded currency pair. Next come EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What role does the ECB play in the Euro's performance?

Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the Eurozone's reserve bank, setting interest rates and overseeing monetary policy. Maintaining price stability is its central mandate, whether through curbing inflation or supporting growth. Interest rate increases and cuts are its main policy tools. The Euro usually benefits when rates are relatively high, or when higher rates are anticipated; the reverse also holds. Monetary policy is decided by the ECB Governing Council at eight meetings each year. The decision-makers comprise the heads of the Eurozone's national banks and six permanent members, among them ECB President Christine Lagarde.

Why do inflation readings matter for the Euro?

The Harmonised Index of Consumer Prices (HICP), which measures Eurozone inflation, is an important economic metric for the Euro. An inflation reading above expectations, particularly one exceeding the ECB's 2% target, requires the central bank to increase interest rates to bring price pressures under control. When interest rates are relatively higher than those of its counterparts, the Euro usually benefits because global investors find the region a more attractive destination for their funds.

Why does economic data move the Euro?

By indicating the economy's health, data releases can affect the Euro's performance. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys are among the indicators that can shape the single currency's direction. Economic strength supports the Euro by drawing in more foreign investment. It may also prompt the ECB to increase interest rates, directly strengthening the currency. Weak economic readings, by contrast, are likely to weigh on the Euro. Particular attention is paid to data from Germany, France, Italy and Spain, the euro area's four largest economies, which together represent 75% of the Eurozone economy.

Why is the Trade Balance important for the Euro?

The Trade Balance is another key release for the Euro, showing the gap between a country's export earnings and its spending on imports during a specified period. Strong overseas demand for a country's exports creates additional demand for its currency as foreign buyers seek to purchase those goods, lifting the currency's value. A positive net Trade Balance therefore strengthens a currency, while a negative balance has the opposite effect.