EUR/USD steadies near 1.1750 ahead of final Eurozone CPI amid fading USD recovery

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EUR/USD draws some support as the post-US NFP USD recovery runs out of steam.
The divergent Fed-ECB expectations contribute to limiting the downside for the pair.
Traders seem reluctant ahead of the ECB meeting and the US CPI print on Thursday.

The EUR/USD pair steadies around the 1.1750 area during the Asian session on Wednesday, and for now, seems to have stalled the previous day's sharp retracement slide from the highest level since September 24. Meanwhile, the fundamental backdrop remains tilted in favor of bullish traders and suggests that the path of least resistance for spot prices remains to the upside.

The US Dollar (USD) struggles to capitalize on the previous day's post-US Nonfarm Payrolls (NFP) bounce from its lowest level since early October amid dovish Federal Reserve (Fed) bets and acts as a tailwind for the EUR/USD pair. The US Bureau of Labor Statistics (BLS) reported that the economy added 64K jobs in November against consensus estimates for an increase of 50K and a fall of 105K in October. Additional details revealed that the Unemployment Rate climbed to 4.6% last month from 4.4% previous.

The mixed jobs data, however, did little to dent expectations that the US central bank will lower borrowing costs two more times next year. Furthermore, expectations for a dovish replacement of Fed Chair Jerome Powell contribute to capping the USD. A Wall Street Journal article indicated that US President Donald Trump will interview Fed Governor Christopher Waller, adding his name to the list consisting of National Economic Council Director Kevin Hassett and former Fed Governor Kevin Warsh for the Fed top job.

The shared currency, on the other hand, continues to draw support from the growing acceptance that the European Central Bank (ECB) is done cutting interest rates. Traders, however, seem reluctant and opt to wait for the crucial ECB meeting on Thursday. The latter will be followed by the latest US consumer inflation figures, which will play a key role in driving the USD demand and providing a fresh impetus to the EUR/USD pair. In the meantime, traders on Wednesday will take cues from the final Eurozone CPI print.

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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