- The EUR/USD edge fell to 1.0425 in the late US session on Wednesday.
- The FOMC minutes showed that the Fed wants to spend time before adjusting interest rates.
- A fresh round of Trump's tariff threat is the weight of the euro.
The EUR/USD pair weakens to near 1.0425 during the late US session on Wednesday. Tariff concerns and geopolitical tensions from US President Donald Trump provide some support to the US dollar (USD). Investors are awaiting the US's first weekly unemployment claims, the CB's major economic index, and the Philadelphia Fed's manufacturing index report.
Minutes of the FOMC meeting, released Wednesday, said it would be appropriate to not change the target interest rate at the January meeting, and believe the Fed will take time to assess economic activity and labor market outlook. He added that he is there. and inflation. Fed policymakers agreed that inflation must show clear signs of slowing before further interest rate cuts can be made.
Federal Reserve (Fed) Austan Goolsbee, Michael Barr and Alberto Musalem are scheduled to speak Thursday. Their statements could provide some hints on future paths to US interest rates. Hawkish's comments from Fed policymakers could boost greenbacks in the short term.
The latest tariff threat lifts greenbacks and creates EUR/USD headwinds. Trump has criticised EU car rates and threatened mutual tariffs in various sectors. Late Tuesday, Trump said he intends to charge automobile fares “nearly 25%” and similar obligations on semiconductors and drug imports.
Euro FAQ
The euro is the currency of 19 European Union countries that belong to the eurozone. This is the world's second most frequently traded currency behind the US dollar. In 2022, it accounted for 31% of all forex trading, with an average daily turnover rate of over $2.2 trillion per day. EUR/USD is the most frequently traded currency pair in the world, with all transactions taking an estimated 30% off, including EUR/JPY (4%), EUR/GBP (3%), EUR// AUD (2%) follows.
The European Central Bank (ECB) in Frankfurt, Germany is the reserve bank of the eurozone. The ECB sets interest rates and manages monetary policy. The ECB's main mission is to maintain price stability. This means controlling inflation or stimulating growth. Its main tool is raising or lowering interest rates. A relatively high interest rate, or higher interest rate expectation – usually benefits the euro and vice versa. The ECB Management Council makes monetary policy decisions at its eight meetings held annually. The decision will be made by six permanent members, including the head of the national bank in the eurozone and Christine Lagarde, the president of the ECB.
Eurozone inflation data is measured by a harmonious index of consumer prices (HICP) and is an important econometric for the euro. If inflation rises more than expected, the ECB requires that interest rates be raised and reverted back to control, especially if it exceeds the ECB's 2% target. A relatively high interest rate compared to its counterpart usually benefits the euro. This is because it makes the region more attractive as a place for global investors to park their money.
The data assesses the health of the economy and could affect the euro. Indicators such as GDP, Manufacturing and Services PMIS, Employment, and Consumer Sentiment Survey can all affect the direction of all currencies. A strong economy is good for the euro. It could not only attract more foreign investments, but it could also encourage the ECB to raise interest rates. This will directly strengthen the euro. Otherwise, the euro could fall if economic data is weak. Economic data for the four largest economies (Germany, France, Italy, Spain) (Germany, France, Italy, Spain) is particularly important, as it accounts for 75% of the eurozone economy.
Another important data release for the euro is trade balances. This indicator measures the difference between what a country makes from exports and what it spends on imports over a certain period of time. If a country produces highly popular exports, the currency acquires pure value from the extra demand generated from foreign buyers seeking to buy these goods. Therefore, a positive net trade balance strengthens the currency and vice versa.
