EUR/USD rebounds to near 1.1200 ahead of UoM Consumer Sentiment Index release
- The EUR/USD pair edged higher as the US Dollar weakened in response to the latest economic data.
- US Producer Price Index declined by 0.5% MoM, while core PPI—excluding food and energy—fell by 0.4% in April.
- The Euro’s gains may be limited as ECB officials continue to hint at the possibility of additional interest rate cuts.
EUR/USD has recovered its daily losses, trading around 1.1200 during the Asian hours on Friday. The pair receives support as the US Dollar (USD) weakens following the recent economic data released on Thursday.
The US Producer Price Index (PPI) rose 2.4% year-over-year in April, easing from the 2.7% increase in March and falling short of the market expectation of 2.5%. Core PPI, which excludes food and energy, climbed 3.1% annually, down from the previous 4%. On a monthly basis, headline PPI dropped 0.5%, while core PPI fell 0.4%.
US Initial Jobless Claims for the week ending May 10 stood at 229,000, unchanged from the revised figure for the previous week, and in line with expectations, according to the US Department of Labor (DOL). Continuing Jobless Claims rose by 9,000 to reach 1.881 million for the week ending May 3.
Traders will likely observe the University of Michigan’s (UoM) Consumer Sentiment Index, set to be released on Friday. Market forecasts anticipate a rise in consumer survey results, which have dropped for four straight months, reaching a two-year low of 52.2. Investors are hopeful that consumer sentiment will show some recovery, potentially boosting the index back to 53.4.
The Euro (EUR) may come under pressure as European Central Bank (ECB) officials continue to signal room for further interest rate cuts amid weakening inflationary trends. ECB policymaker and Bank of France Governor François Villeroy de Galhau commented that protectionist measures announced by the US administration are likely to “restart inflation in its economy, not in Europe,” potentially supporting a rate cut as early as this summer.
Meanwhile, Eurozone GDP growth for Q1 was revised slightly lower to 0.3% quarter-on-quarter, down from the initial estimate and prior reading of 0.4%. On an annual basis, GDP grew by 1.2%, in line with expectations. Notably, Employment Change for the January–March period surprised to the upside, rising 0.3% quarter-on-quarter versus the flash estimate and prior reading of 0.1%.
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.