Euro nudges higher above 1.1350 on softer Fed stance, traders await US jobs data

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The EUR/USD pair posts modest gains near 1.1380 during the early Asian session on Thursday. The US Dollar (USD) edges lower against the Euro (EUR) on less hawkish remarks from Federal Reserve (Fed) Chairman Kevin Warsh. Traders will closely monitor the US jobs data for June later on Thursday.

EUR/USD trades with mild gains around 1.1380 in Thursday’s early Asian session.
Fed's Warsh said rate decisions will be made behind closed doors and ruled out forward guidance.
Eurozone inflation eased more than expected last month, further curbing pressure on the ECB to raise interest rates again.

Fed’s Warsh, on Wednesday at the ECB Forum on Central Banking, declined to give any signal as to what the central bank may do at its July policy meeting but did note that inflation was too elevated. He emphasized commitment to central bank independence and a 2% inflation target.

Warsh reiterated his preference for the central bank to scale back its bond portfolio, while highlighting that any such step will only be made after extensive public preparation.

“At a minimum, his comments provided no fuel for speculation on a near-term July rate hike, and in our view suggest the new Fed chair – while keeping all options open meeting by meeting – does not currently see cause for an immediate hike,” said Krishna Guha at Evercore.

On the other hand, signs of softer inflation in the Eurozone could prompt traders to reduce bets on the European Central Bank (ECB) rate hikes. This, in turn, might cap the upside for the shared currency. Eurozone inflation, as measured by the Harmonized Index of Consumer Prices (HICP), fell to 2.8% YoY in June from 3.2% in May, Eurostat showed on Wednesday. This figure came in softer than the market expectation of 3.0%.

Meanwhile, the core HICP inflation, which excludes volatile food and fuel prices, slowed to 2.4% YoY in June from 2.6% in the previous reading, below the market consensus of 2.6%.

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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