EUR/USD gains traction above 1.0750 as US consumer confidence tumbles to a four-year low
- EUR/USD holds positive ground around 1.0780 in Wednesday’s Asian session, adding 0.13% on the day.
- The US CB’s Consumer Confidence Index fell to a four-year low in March.
- ECB’s Villeroy said there is still room to cut the interest rates further.
The EUR/USD pair gains ground to near 1.0780 during the Asian trading hours on Wednesday. The Greenback softens against the Euro (EUR) due to the weaker US economic data and the uncertainty surrounding US President Donald Trump's trade policy ahead of a new round of tariffs next week. The US Durable Goods Orders report for February is due later on Wednesday.
Weak confidence data and concerns about the economic slowdown in the United States could drag the US Dollar (USD) lower. Data released by the Conference Board on Tuesday showed that US consumer confidence fell to the lowest level in more than four years in March, indicating how the uncertainty is weighing heavily on households.
Persistent uncertainty over Trump’s reciprocal tariff plans for next week might undermine the Greenback in the near term. Trump said late Monday that not all levies would come on the April 2 deadline, and some countries would get breaks, without providing more details. "There's an elevated baseline anxiety in the markets still ahead of next week's trade policy announcement from the Trump administration," said Kyle Rodda, senior financial markets analyst at capital.com.
However, the dovish comments from the European Central Bank (ECB) policymakers might weigh on the EUR. ECB Governing Council, Francois Villeroy de Galhau, said late Tuesday that there is still room to cut the interest rates further, and the 2.5% deposit rate could fall to 2% by the end of the summer.
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.