A Euro at an 18-month low heads into Eurozone growth and US prices
- EUR/USD breaks below its October floor and trades at an 18-month low.
- A bigger Fed hike is in play for December, widening the gap with the ECB.
- Eurozone growth and jobs figures are due Friday, before US producer prices.
Three straight daily falls have taken the Euro to its lowest in 18 months, and the break came from the US side of the pair. EUR/USD is down from near 1.1200 at Monday's close to around 1.1050, after a session low just under it. Wednesday's bar was the first to end below the lows the pair set in October.
Fed Governor Waller said on November 10 that a half-point hike should be an option on December 9, the same day US inflation beat forecasts. Futures give a quarter-point roughly nine chances in ten and a half-point the rest, and Thursday's jobless claims of 200K against a 195K forecast changed none of it. The European Central Bank (ECB) deposit rate is 2.50% against the Fed's 3.75%-4.00%, so each step up in that pricing widens a gap of at least 1.25 percentage points.
Crude Oil rose on Thursday as well, with Brent up more than 3% after Iranian state media reported an attack on Sirik, in southern Iran. The Eurozone imports nearly all of its Crude Oil and pays for it in Dollars. The Dollar Index reached an 18-month high on the same move, and most of that index's climb since August is the Euro falling.
On the calendar
ECB Executive Board member Schnabel speaks at 07:10 GMT on Friday. Third-quarter Eurozone growth follows at 10:00 GMT, forecast to stay at 0.4% on the quarter and 1.3% on the year, with employment forecast up 0.2% after 0.1%. Final October inflation is due at 10:00 GMT on Wednesday, November 18, and all of it comes before the ECB's December decision.
US producer prices are due at 13:30 GMT on Friday, forecast up 0.4% on the month after 1.3% and up 6.6% on the year after 6.3%. Retail sales follow at 13:30 GMT on Tuesday, November 17, forecast flat after 0.8%, and both feed the size of the Fed's December move.
On the charts
The pair had traded between 1.1100 and 1.1300 since October 2, and Thursday's high came at the bottom of that range without getting back inside it. The fall from the late-August peak just above 1.1700 is now about 5.5%. No bar since the chart's first in the middle of July has traded lower.
EUR/USD daily chart
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.