EUR/USD holds below 1.0900 as US political violence boosts US Dollar
- EUR/USD trades with a bearish bias near 1.0885 in Monday’s early Asian session.
- The US PPI inflation rose faster than expected in June.
- US political violence over the weekend lifts the Greenback, a safe-haven currency.
The EUR/USD pair attracts some sellers around 1.0885 during the early Asian session on Monday. The major pair edges lower amid risk aversion, triggering a fresh bid of the US Dollar (USD). The Eurozone May Industrial Production, July NY Empire State Manufacturing Index will be released on Monday, along with the Federal Reserve's (Fed) Mary Daly speech.
The wholesale inflation in the US, as measured by the Producer Price Index (PPI) rose to 2.6% YoY in June from a revised reading of 2.4% in the previous reading, above the consensus of 2.3%. The core PPI climbed 3.0% YoY, surpassing the expected 2.5%. However, the attention remains on the recent cooler Consumer Price Index (CPI) inflation, which raised expectations for a rate cut.
Additionally, the University of Michigan's Consumer Sentiment Index survey dropped to 66.0 in July from 68.2 in June, the lowest in seven months, falling short of the expected increase to 68.5. The UoM 5-year Consumer Inflation Expectations declined slightly in July to 2.9% from the previous reading of 3.0%.
Fitch analysts said that the Federal Open Market Committee (FOMC) might cut interest rates sooner than later, citing potential concern at the Federal Reserve over the labour market. The Fed will be worried about additional weakness in the labour market down the road.
The US political violence over the weekend has boosted a safe-haven currency like the Greenback and created a headwind for EUR/USD. During the rally in Butler, Pennsylvania on Saturday, former President Donald Trump was injured in an assassination attempt. One spectator was killed in the attack, two others were critically injured, and Trump was pictured with blood spilling from his ear, per BBC.
On the Euro front, officials anticipate pricing pressures to remain close to their current levels for the entire year, lowering expectations for the European Central Bank's (ECB) further rate cuts. The ECB president Christine Lagarde emphasized its cautious approach this month, saying, “The strong labour market means that we can take time to gather new information, but we also need to be mindful of the fact that the growth outlook remains uncertain.”
Euro FAQs
The Euro is the currency for the 20 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.