The EUR/USD pair rose after posting gains in the previous six consecutive sessions, trading around 1.1650 during Asian hours on Monday. The pair is rising as the US Dollar (USD) faces difficulties amid dovish outlook from the Federal Reserve (Fed). Slower-than-expected US job growth on Friday suggests the US central bank may keep interest rates steady later this month.
US nonfarm payrolls rose by 50,000 in December, lower than the 56,000 in November (revised from 64,000) and weaker than market expectations of 60,000. However, the unemployment rate fell to 4.4% in December from 4.6% in November, while average hourly earnings rose to 3.8% year-on-year in December from 3.6% in the previous reading.
Richmond Fed President Tom Barkin said the lower unemployment rate was welcome and described job growth as modest but stable. Barkin added that it’s difficult to find companies outside of healthcare or artificial intelligence that are hiring, and said it’s still unclear whether the job market will tilt toward more hiring or more layoffs.
The Euro may face additional downside as declining inflation in the Eurozone reduces expectations of further policy tightening by the European Central Bank. Headline inflation slowed to 2.0% in December, its lowest level in four months and in line with the European Central Bank’s target, while core inflation eased to 2.3%, coming in slightly below expectations.
Bloomberg reported that European countries led by the United Kingdom and Germany are discussing strengthening their military presence in Greenland to enhance security in the Arctic. Germany may propose a joint NATO mission, while British Prime Minister Keir Starmer urged allies to step up efforts in the far north, amid renewed comments by US President Donald Trump calling for US ownership of Greenland.
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.
