Euro flatlines as traders await US jobs report

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The EUR/USD pair holds steady around 1.1620 during the early Asian session on Friday. Traders prefer to wait on the sidelines ahead of the key US economic data. The US jobs data for May will be the highlight later in the day.

EUR/USD trades flat near 1.1620 in Friday’s early Asian session.
Traders will closely watch the release of the US jobs data for May later on Friday.
The ECB is expected to raise its deposit rate to 2.25% at its June meeting.

Stronger-than-expected US May ADP private payrolls and JOLTS job openings data released earlier this week suggested a resilient US labor market. Traders will take more cues from the US Nonfarm Payroll (NFP) figure for fresh impetus. The US economy is projected to see 85,000 jobs added in May, while the Unemployment Rate is projected to remain steady at 4.3% during the same period.

Any signs of improvement in the US labor market might prompt traders to raise their expectations that the Federal Reserve (Fed) will keep interest rates higher for longer, supporting the US Dollar (USD) against the Euro (EUR). Markets are now pricing in nearly a 42% chance of a Fed rate hike in December, according to the CME FedWatch Tool.

On the Euro front, the hawkish stance of the European Central Bank (ECB) might help limit the EUR’s losses. The ECB is likely to raise its deposit rate to 2.25% at its upcoming June policy meeting, with another increase likely in September, a Reuters poll of economists showed.

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.