EUR/USD trades around 1.1700, maintains position near four-year highs
- EUR/USD maintains its position near 1.1745, the highest since September 2021.
- The US Dollar struggles due to renewed concerns over the Fed's independence.
- French President Emmanuel Macron warned that Europe will impose an equivalent levy if the 10% US tariff stays.
EUR/USD extends its winning streak that began on June 18, trading around 1.1700 during the Asian hours on Friday. The EUR/USD pair continues to gain ground as the US Dollar (USD) faces challenges due to renewed concerns over the US Federal Reserve’s (Fed) independence.
US President Donald Trump called, at the Hague on the sidelines of the NATO summit, the Federal Reserve Chair Jerome Powell “terrible” and shared that he has several potential successors in mind. “I know within three or four people whom I’m going to pick.” Trump could weaken Powell’s authority by announcing his preferred candidate by September or October to lead the central bank next year.
Chicago Fed President Austan Goolsbee said on Thursday that political dynamics and the naming of a so-called shadow chair have no influence on policy decisions. Goolsbee added, “That would not affect the FOMC itself.” “Just look at the minutes and transcripts. You can see, word for word, what the rationale is in making the decisions, and they’re not about elections and they’re not about partisan politics,” he said as per CNBC.
On Thursday, French President Emmanuel Macron said that he favors a speedy and equitable EU-US trade agreement. However, Macron also warned that if a 10% tariff from the United States (US) stays, Europe will retaliate by imposing an equivalent levy on US companies.
European Central Bank (ECB) Vice President Luis de Guindos noted on Thursday, “The role of the Euro can expand if the European Union (EU) progresses with reforms.” “Markets are surprisingly calm in recent days given geopolitical events,” he added.
Meanwhile, ECB chief economist Philip Lane said that "Our monetary policy will have to take into account not only the most likely path (the baseline) but also the risks to activity and inflation," per Reuters.
Euro FAQs
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%).
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.
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.
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.
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.