The Euro (EUR) regains some lost ground against the US Dollar (USD) on Thursday, with EUR/USD snapping a two-day losing streak as the Greenback struggles to attract a meaningful recovery. At the time of writing, EUR/USD is trading around 1.1883, up about 0.10%.
Recent US labour data point to some stabilisation in labour-market conditions, dampening hopes for near-term Federal Reserve (Fed) interest rate cuts. However, the USD has struggled to draw support, as structural headwinds linked to Donald Trump’s aggressive trade agenda, repeated calls for lower interest rates and interference with the Fed’s independence continue to weigh on investor sentiment, keeping the Euro well supported.
The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 96.80, hovering close to two-week lows.
US economic data released earlier in the day showed that Initial Jobless Claims fell to 227K from 232K, although the print still came in above market expectations of 222K. At the same time, Continuing Jobless Claims edged up to 1.862 million from 1.841 million.
The figures follow Wednesday’s stronger-than-expected Nonfarm Payrolls (NFP) report, which showed the US economy added 130K jobs in January, well above the 70K forecast, while the Unemployment Rate eased to 4.3% from 4.4%.
Traders now turn their attention to the US Consumer Price Index (CPI) data due on Friday to reassess the timing of Fed rate cuts, with markets still pricing in around 50 basis points of easing in the second half of the year. While a cooler inflation print could revive expectations for an earlier policy pivot, sticky price pressure remains a key concern for policymakers.
On Wednesday, Kansas City Fed President Jeffrey Schmid said that further rate cuts could allow inflation to remain elevated for longer, adding that it is still appropriate to keep monetary policy restrictive, with inflation running close to 3%.
In the Eurozone, attention also turns to the preliminary Employment Change (QoQ) for Q4 and GDP data due on Friday. Meanwhile, the European Central Bank (ECB) is widely expected to keep policy on hold for an extended period.
A Reuters poll conducted between February 9-12 showed that 66 out of 74 economists expect the central bank to hold its deposit rate at 2.00% through 2026, and no change is expected before 2027.
Euro FAQs
The Euro is the currency for the 20 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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