- In Wednesday's Asian session, EUR/USD remained steady around 1.1070.
- US ISM Manufacturing PMI in September was weaker than expected.
- Eurozone inflation fell below the ECB target in September.
During Wednesday's Asian trading session, the EUR/USD pair was moving moderately higher around 1.1070. Meanwhile, signs of rising geopolitical tensions in the Middle East could weigh on risk assets such as the euro (EUR). Investors are keeping an eye on the US ADP employment change data for September, which will be released later on Wednesday.
Traders still believe the US Federal Reserve (Fed. The Bank is assessing the possibility of a major interest rate cut next month. According to the CME FedWatch tool, financial markets are currently pricing in a nearly 37.4% chance of a 50 basis point (bp) rate cut in November, with a 62.6% chance of a 25 basis point cut. There is.
Weak economic data from the US on Tuesday hurt the US dollar. The US ISM Manufacturing PMI for September was flat at 47.2, lower than the expected 47.5. The report suggested that the US manufacturing sector continues to shrink.
Across the pond, eurozone inflation eased in September, falling below the European Central Bank's (ECB) target. The Harmonized Index of Consumer Prices (HICP) rose 1.8% year-on-year in September, compared with 2.2% in August, Eurostat said on Tuesday. This number was the lowest since April 2021. Although September's inflation numbers are promising, the eurozone economy may not be out of the woods yet. The ECB cut the deposit facility rate to 3.50% in September, but has signaled that further cuts may be made in the near future.
Concerns about further war in the Middle East could put selling pressure on the common currency, pushing safe-haven assets such as the U.S. dollar higher. Iran has launched more than 200 ballistic missiles toward Israel, and Prime Minister Benjamin Netanyahu has vowed to retaliate against Iran for Tuesday's missile attack.
(This article was amended on 2 October at 07:29 GMT to note that the ECB cut the deposit scheme rate to 3.50% in September.)
Euro Frequently Asked Questions
The euro is the currency of the 19 European Union countries that belong to the euro area. It is the second most traded currency in the world after the US dollar. In 2022, Accounted for It accounts for 31% of all foreign exchange transactions and has an average daily trading volume of over $2.2 trillion. EUR/USD is the most frequently traded currency pair in the world. accounting An estimated 30% discount on all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB), located in Frankfurt, Germany, is the reserve bank of the euro area. The ECB sets interest rates and controls monetary policy. The ECB's main task is to maintain price stability, which means controlling inflation or stimulating growth. The main means is to raise or lower interest rates. Relatively high interest rates, or expectations of rising interest rates, usually benefit the euro and vice versa. The ECB Governing Council decides monetary policy at its eight annual meetings. Decisions will be made by the heads of the euro zone national banks and the six permanent members of the ECB, including Christine Lagarde, president of the ECB.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric indicator for the euro. If inflation rises more than expected, especially above the ECB's 2% target, the ECB will mandate interest rate hikes to rein in inflation. Relatively high interest rates compared to other countries typically benefit the euro, as it makes the region more attractive to global investors as a place to park their funds.
The data release will gauge the health of the economy and could have an 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. This could not only attract more foreign investment but also prompt the ECB to raise interest rates, which could directly lead to a stronger euro. Otherwise, if economic indicators are weak, the euro is likely to weaken. Economic data for the euro area's four largest economies (Germany, France, Italy, and Spain) is particularly important, as they account for 75% of the euro area economy.
Another important data regarding the euro is the trade balance. This indicator measures the difference between what a country earns from exports and what it spends on imports over a given period of time. If a country produces highly sought-after export goods, the value of its currency increases purely due to the additional demand generated from foreign buyers seeking to purchase these goods. Therefore, if the net trade balance is positive, the currency strengthens, and vice versa if it is negative.
