EUR/USD stays silent below 1.1600 as Fed rate cut bets recede

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EUR/USD moves little after three days of losses, trading around 1.1580 during the Asian hours on Wednesday. The pair may further lose ground as the US Dollar (USD) gains amid declining US Federal Reserve (Fed) rate cut bets for December.

EUR/USD may further decline as the US Dollar gains amid declining Fed rate cut bets.
The CME FedWatch Tool indicates 49% odds for a 25-basis-point Fed rate cut in December.
The Euro attempts to steady as traders expect the ECB to adopt a cautious stance.

The CME FedWatch Tool suggests that financial markets are now pricing in a 49% chance that the Fed will cut its benchmark overnight borrowing rate by 25 basis points (bps) at its December meeting, down from 67% probability that markets priced a week ago.

US Initial Jobless Claims showed on Tuesday that 232,000 people filed first-time claims for state unemployment insurance in the week ended October 18. Continuing Claims came in at 1.957 million, up slightly from 1.926 million in the prior week.

Meanwhile, an Automatic Data Processing (ADP) report showed that employers cut 2,500 jobs a week on average during the four weeks ending November 1.

Richmond Fed President Thomas Barkin commented on the economic outlook on Tuesday, noting that the labor market appears more balanced, with firms reporting improved worker availability and recent layoffs signalling the need for caution. Barkin said inflation doesn’t seem to be rising, but it’s also unclear whether it will return to the Fed’s 2% target. He emphasized that, without more decisive data, it remains difficult to reach a broad policy consensus.

The Euro (EUR) attempts to hold ground against the US Dollar due to the cautious sentiment surrounding the near-term European Central Bank’s (ECB) monetary policy outlook. The ECB is widely expected to keep rates unchanged, supported by stable economic performance and inflation near target.

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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