EUR/USD maintains position above 1.0800 near four-month highs
- EUR/USD holds gains near a four-month high at 1.0853, reached March 7.
- The US Dollar struggles as Treasury yields fall on rising dovish sentiment surrounding the Fed’s policy outlook.
- ECB President Christine Lagarde cautioned that risks to growth remain skewed to the "downside."
EUR/USD edges higher after registering losses in the previous session, trading around 1.0810 during the Asian hours on Friday. The pair gains ground as the US Dollar loses ground, driven by falling Treasury yields as markets anticipate more aggressive Fed rate cuts this year amid US growth concerns.
US Initial Jobless Claims for the week ending March 1 dropped to 221K, compared to 242K in the previous week, according to the US Department of Labor (DOL) on Thursday. This figure came in below the market consensus of 235K. US NFP is expected to show a modest rebound in job growth. Projections suggest net job additions will rise to 160K in February, up from January’s subdued 143K.
Meanwhile, traders remain focused on global trade developments, as Canada postpones its planned second round of retaliatory tariffs on US products until April 2. This decision follows US President Donald Trump’s exemption of Mexican and Canadian goods under the USMCA from his proposed 25% tariffs.
On Thursday, the European Central Bank (ECB) cut its Deposit Facility Rate by 25 basis points (bps) for the fifth consecutive time, bringing it down to 2.5%, as expected. The Main Refinancing Operations Rate was also lowered by 25 bps to 2.65%, in line with forecasts.
During a press conference, ECB President Christine Lagarde explained that the decision to ease rates was aimed at supporting economic stability. However, she cautioned that risks to growth remain skewed to the "downside." Lagarde also warned that trade tensions, driven by US President Donald Trump’s tariff policies, could further dampen economic growth.
While markets continue to seek additional rate cuts to reduce financing and borrowing costs, persistent inflation in the EU—and now in the US, following a recent uptick in key inflation indicators—has constrained central banks' ability to adjust rates more aggressively.
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.
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