On Wednesday, during Asian trading hours, the euro/USD was trading around 1.1620, drawing some selling interest. The euro (EUR) weakened against the US dollar (USD), mainly due to worries surrounding the political situation in France. The FOMC minutes are expected to be a key focus later on Wednesday.
The common currency remains under pressure after French Prime Minister Sebastian Lecorgne resigned on Monday. It appears that France is racing against time to meet the deadline for submitting its budget proposal for 2026. Lawmakers will need to approve an emergency bill to enable spending from January 1st until the full budget is ready.
Meanwhile, the US government shutdown has now reached its eighth day, as the Senate failed to pass a spending proposal to reopen federal operations. On Tuesday, US President Donald Trump announced plans to lay off federal employees if the closures persist from Monday, mentioning that details about the cuts would be revealed in the next four to five days.
If the federal agencies remain shut for a long time, the dollar could weaken, potentially reducing losses in major currency pairs. Investors are currently considering a 25 basis points (bps) interest rate cut during the Federal Reserve meeting in October, with further cuts anticipated in December.
Frequently Asked Questions about Euro
The euro is used by 19 countries in the eurozone and is the second most traded currency globally, right after the US dollar. In 2022, it represented 31% of all forex transactions, with daily trading volumes exceeding $2.2 trillion. The EUR/USD pair is the most traded globally, making up about 30% of all transactions, followed by EUR/JPY, EUR/GBP, and EUR/AUD.
The European Central Bank (ECB) located in Frankfurt is responsible for managing the eurozone’s monetary policy and interest rates. Its primary goal is to maintain price stability, which involves controlling inflation or boosting economic growth. Adjusting interest rates is the main method for achieving this. Typically, higher interest rates, or expectations of such, are beneficial for the euro, and vice versa. The ECB meets eight times a year to decide on monetary policy, with decisions being made by the head of the Eurozone National Bank along with six permanent board members, including President Christine Lagarde.
Inflation data in the Eurozone, tracked by the Consumer Price Harmony Index (HICP), is crucial for the euro. If inflation rates exceed the ECB’s target of 2%, interest rate hikes may be necessary to control it. Generally, higher relative interest rates attract investors to the eurozone as a desirable locale for deposits.
Economic indicators such as GDP, manufacturing and services PMI, employment numbers, and consumer confidence can all influence the euro’s direction. A robust economy generally supports the euro, enticing foreign investment, and potentially prompting the ECB to consider raising interest rates. Conversely, weak economic indicators might lead to a drop in the euro’s value. Data from the four largest eurozone economies—Germany, France, Italy, and Spain—are particularly significant, as they represent 75% of the eurozone’s economy.
Another vital aspect of the euro is the trade balance, which indicates the difference between a country’s earnings from exports and its spending on imports over time. A country with popular exports can see its currency strengthened due to increased demand from foreign buyers. Thus, a positive trade balance typically boosts the currency, while a negative one can have the opposite effect.
