EUR/USD flat lines above 1.1750 ahead of key US data, Eurozone PMI release

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The EUR/USD pair trades on a flat note near 1.1770 during the early Asian session on Friday. The potential upside for the Euro (EUR) seems limited amid European Central Bank (ECB) leadership speculation swirls.

EUR/USD holds steady around 1.1770 in Friday’s early Asian session.
Uncertainty surrounding ECB leadership could weigh on the Euro.
Traders will take more cues from the flash US Q4 GDP and PCE inflation reports, which are due later on Friday.

The Financial Times reported that ECB President Christine Lagarde was expected to leave her post before the end of her eight-year term. Analysts suggested an early departure would allow French President Emmanuel Macron and German Chancellor Friedrich Merz to select a successor before the April 2027 French presidential election.

Meanwhile, stronger-than-expected US labor market data and hawkish FOMC Minutes provide some support to the Greenback and create a headwind for the major pair. Several Federal Reserve (Fed) officials suggested that if inflation remains stubbornly above the 2% target, rate hikes could be on the table, according to FOMC Minutes released Wednesday. Policymakers advocated for a "two-sided" description of future policy to reflect this risk.

Traders await the release of key US economic data later on Friday, including the flash Gross Domestic Product (GDP) data for the fourth quarter (Q4) and the Personal Consumption Expenditures (PCE) report. In case of weaker-than-expected outcomes, this could drag the US Dollar (USD) lower against the shared currency. On the Euro front, the preliminary readings of the Purchasing Managers’ Index (PMI) from the Eurozone and Germany will be published.

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.