EUR/USD tumbles to near 1.1350 on renewed US Dollar demand
- EUR/USD slumps to near 1.1355 in Wednesday’s early Asian session, down 0.58% on the day.
- Trump said he had no intention of firing Fed’s Powell, despite being frustrated with the high interest rates.
- Traders ramp up ECB rate cut bets in the June meeting.
The EUR/USD pair attracts some sellers to around 1.1355 during the early Asian session on Wednesday, pressured by the renewed US Dollar (USD) demand. The Greenback recovers after US President Donald Trump said he had no intention of firing Federal Reserve (Fed) Chair Jerome Powell despite his frustration with the central bank not moving more quickly to slash interest rates.
The White House said on Tuesday that the Trump administration was making progress on negotiations of trade deals aimed at reducing the sweeping tariffs he announced earlier this month. US Press Secretary Karoline Leavitt said that 18 different countries have presented trade offers to the US and that Trump's trade team was meeting with 34 countries this week to discuss potential agreements. The positive developments surrounding US trade talks with trading partners lift the USD and act as a headwind for the major pair.
Additionally, the hawkish comments from the Fed officials contribute to the Greenback’s upside. Fed Board Governor Adriana Kugler said late Tuesday that with US import tariffs significantly larger than expected and likely to put upward pressure on prices, the US central bank ought to keep short-term borrowing costs steady until inflation risks recede.
Across the pond, the rising expectation that the European Central Bank (ECB) could cut interest rates again in the June policy meeting weighs on the shared currency. Traders are now pricing in nearly a 75% odds of a June rate cut, up from roughly 60% before the ECB's decision, according to LSEG data.
Investors will keep an eye on the preliminary reading of the HCOB Purchasing Managers Index (PMI) from the Eurozone and Germany for April, which is due later on Wednesday. On the US docket, the flash S&P Global Manufacturing and Services PMIs for April will be published.
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.