The EUR/USD pair continues its winning streak for the third consecutive session, trading around the 1.1580 level during Asian hours on Wednesday. The pair is gaining ground as the US dollar (USD) comes under pressure, as weak economic data in the US reinforces expectations for a Federal Reserve (Fed) rate cut in December.
The CME FedWatch tool indicates that markets now estimate more than an 84% chance that the Fed will cut its benchmark overnight borrowing rate by 25 basis points at its December meeting, up from the 50% chance that markets had priced in a week ago.
The US Census Bureau released US retail sales on Tuesday, which rose 0.2% month-on-month in September, slowing from the 0.6% increase in August, indicating more cautious consumer spending. The Retail Sales Watch Group fell by 0.1%, versus expectations for a rise of 0.3% and the previous growth of 0.6%. Separately, the Conference Board reported a sharp deterioration in household sentiment, with consumer confidence falling 6.8 points to 88.7 in November from 95.5 in October.
The US Producer Price Index (PPI) remained steady at 2.7% y/y in September, which is in line with expectations and the August reading and suggests that inflationary pressures have stabilized. Core Producer Price Index fell to 2.6% from 2.9%, missing expectations of 2.7%.
Additionally, the EUR/USD pair rose as the euro draws support from dovish sentiment surrounding the European Central Bank (ECB) policy outlook. Traders expect the central bank to keep interest rates unchanged throughout 2026, citing a resilient economy and inflation near target.
ECB Governor and Deutsche Bundesbank President Joachim Nagel said on Monday that the central bank is also monitoring the strong rise in services prices, noting that the December forecast will provide a clearer view on whether the current monetary policy stance remains appropriate.
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.
