EUR/USD treads water above 1.1550 ahead of ZEW Survey data from Germany

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EUR/USD inches higher after registering nearly 0.5% losses in the previous session, trading around 1.1570 during the Asian hours on Tuesday. The pair holds ground ahead of the final September Harmonized Index of Consumer Prices (HICP) and ZEW Survey data from Germany.

EUR/USD maintains its position ahead of key economic data from Germany.
France’s President Macron reappointed Lecornu as Prime Minister, but opposition leaders quickly filed a no-confidence motion against his government.
The US Dollar struggles due to rising odds of further Fed rate cuts by year-end.

The EUR/USD pair weakened as the Euro (EUR) came under pressure amid ongoing political unrest in France. President Emmanuel Macron reappointed Sebastien Lecornu as Prime Minister, who has since formed a new cabinet. However, opposition leaders Marine Le Pen and Eric Ciotti have already filed a no-confidence motion in an attempt to oust Lecornu’s government.

The pair draws support as the US Dollar (USD) remains subdued due to rising odds of further rate cuts by the Fed by year-end. The CME FedWatch Tool suggests that markets are now pricing in nearly a 97% chance of a Fed rate cut in October and a 92% possibility of another reduction in December.

Philadelphia Fed President Anna Paulson said on Monday that rising risks to the job market argue for more interest rate cuts by the US central bank, as trade tariffs now appear unlikely to push up inflation as much as expected.

The Greenback also struggles as traders adopt caution amid the ongoing US government shutdown weighs on the US economy. Last week’s missed paychecks and the suspension of billions of dollars’ worth of government services are likely to ripple beyond federal employees and impact the broader public.

Euro FAQs

What is the Euro?

The Euro is the currency for the 19 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.