EUR/USD rose over 0.59% on Wednesday as the Federal Reserve cut interest rates as expected, in a “bearish commentary” that prompted traders to dump dollars and buy the common currency. At the time of writing, the pair is trading near daily highs at 1.1695, having rebounded from daily lows of 1.1620.
Dollar weakens as Powell signal stalls, Euro advances amid bullish momentum
Earlier, the Fed cut interest rates by 25 basis points, with three opponents including Governor Stephen Meiran, who favored a 50 basis point cut. Two regional Fed presidents, Jeffrey Schmid and Austin Goolsbee, voted to maintain current interest rates.
The monetary policy statement remained largely unchanged, noting that employment risks are tilted to the downside while inflationary pressures continue to rise. Federal Reserve Chairman Jerome Powell acknowledged this tension between the central bank’s dual mandate during his press conference.
In the euro zone, the agenda was empty, but European Central Bank member Makhlouf said he was confident that medium-term inflation would reach 2%, according to Bloomberg.
Earlier, European Central Bank President Christine Lagarde said that policy is in good shape and that the bank may raise its forecasts in December.
Euro price this week
The table below shows the percentage change in the Euro (EUR) against the major currencies listed this week. The euro was the strongest against the Japanese yen.
| US dollars | euro | GBP | JPY | Canadian | Australian dollar | New Zealand dollar | Swiss franc | |
|---|---|---|---|---|---|---|---|---|
| US dollars | -0.39% | -0.39% | 0.47% | -0.27% | -0.51% | -0.69% | -0.49% | |
| euro | 0.39% | 0.03% | 0.89% | 0.16% | -0.07% | -0.26% | -0.06% | |
| GBP | 0.39% | -0.03% | 0.88% | 0.13% | -0.10% | -0.29% | -0.09% | |
| JPY | -0.47% | -0.89% | -0.88% | -0.72% | -0.95% | -1.13% | -0.93% | |
| Canadian | 0.27% | -0.16% | -0.13% | 0.72% | -0.22% | -0.42% | -0.22% | |
| Australian dollar | 0.51% | 0.07% | 0.10% | 0.95% | 0.22% | -0.19% | 0.00% | |
| New Zealand dollar | 0.69% | 0.26% | 0.29% | 1.13% | 0.42% | 0.19% | 0.20% | |
| Swiss franc | 0.49% | 0.06% | 0.09% | 0.93% | 0.22% | -0.01% | -0.20% |
The heat map shows the percentage changes in major currencies versus each other. The base currency is chosen from the left column, while the counter currency is chosen from the top row. For example, if you select EUR from the left column and move along the horizontal line to USD, the percentage change displayed in the box will represent EUR (base)/USD (quote).
Daily summary of market drivers: Euro advances as Powell weakens dollar
- The US Dollar Index (DXY) fell 0.58% to 98.68, as the dollar broadly weakens against its major peers.
- Powell said that the central bank is “well positioned” to “wait and see” how the economy develops, after overall easing of 75 basis points this year. He stated that the federal funds rate is near the upper limit of neutrality estimates and that they will wait for economic data that may be “distorted.”
- After cutting interest rates by 175 basis points, Powell said: “We have reduced our policy again to a level that is certainly not very restrictive at this point,” adding: “I think it is in a somewhat neutral range.”
- The Summary of Economic Expectations (SEP) included a “point chart,” indicating that most members expect the federal funds rate to be around 3.4% next year, suggesting a possible 25 basis point cut. In the long term beyond 2028, Fed policymakers expect neutral interest rates near 3%.
Technical Analysis: EUR/USD is confined to a range below 1.1650, and eyes are awaiting the Federal Open Market Committee meeting
EUR/USD is hovering around the 1.1650 area for the sixth session in a row, crossing a narrow consolidation range between 1.1650 and 1.1600. Momentum appears to remain bullish, as shown by the Relative Strength Index (RSI), but buyers need to reclaim the 1.1700 area to be able to challenge the 1.1800 area and the year-to-date high at 1.1918.
On the other hand, if EUR/USD falls below the 1.1650 level, the 50-day simple moving average (SMA) is located near the 1.1604 level. A decisive break below this area would expose the 20-day simple moving average at 1.1599, followed by the 1.1500 psychological level.
(This story was corrected on December 10 at 19:00 GMT to fix the Fed meeting date in the first bullet point and to correct Fed Governor Christopher Waller’s title)
Frequently asked questions about the euro
The euro is the official currency of the twenty European Union countries that belong to the eurozone. It is the second most traded currency in the world after the US dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily trading volume of more than $2.2 trillion per day. The EUR/USD is the most widely traded currency pair in the world, accounting for a 30% discount on 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 euro area. The European Central Bank 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 to raise or lower interest rates. Relatively high interest rates – or the expectation of higher interest rates – usually benefit the euro and vice versa. The ECB’s Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by the heads of the eurozone’s national banks and the six permanent members, including the President of the European Central Bank, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is one of the important economic indicators for the euro. If inflation rises beyond expected, especially if it is above the ECB’s 2% target, this forces the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to their counterparts usually benefit the euro, because they make the region more attractive as a place for global investors to park their money.
Data releases measure the health of the economy and can affect the euro. Indicators such as GDP, manufacturing and services PMIs, employment, and consumer confidence 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, it may encourage the European Central Bank to raise interest rates, which will directly strengthen the euro. Otherwise, if economic data is weak, the euro will likely fall. Economic data for the four largest Eurozone economies (Germany, France, Italy and Spain) are of particular interest, as they represent 75% of the Eurozone economy.
Another important data 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 during a certain period. If a country produces highly desirable exports, its currency will gain value from the additional demand generated by foreign buyers seeking to purchase these goods. Therefore, a positive net trade balance strengthens the currency and vice versa for a negative balance.
