EUR/USD rebounds above 1.1200, downside remains due to improved US Dollar
- EUR/USD may lose its ground as the US Dollar receives support from easing trade tensions.
- President Trump announced a "major" trade deal with the United Kingdom, although key tariffs remain at 10%.
- US Initial Jobless Claims dropped to 228,000 for the week ending May 3, slightly beating expectations.
The EUR/USD pair trimmed daily losses and is trading around 1.1230 during Friday's Asian session. The pair depreciated as the US Dollar (USD) found support from upbeat US economic data and signs of easing trade tensions.
US President Donald Trump announced a "major" trade deal with the United Kingdom (UK), although key tariffs remain at 10%, which has tempered market optimism. Attention now turns to preliminary US-China trade talks set for this weekend in Switzerland, but both sides have downplayed expectations of a breakthrough.
Trump continues to take a hardline stance on China, particularly after appointing a new envoy to Beijing. Although discussions around potential tariff exemptions are underway, the US administration remains cautious, with Trump stating they are “not looking for so many exemptions.”
On the data front, US initial jobless claims fell to 228,000 for the week ending May 3, slightly below expectations and down from the previous week’s unrevised figure of 241,000. The seasonally adjusted insured unemployment rate held steady at 1.2%. However, the four-week moving average edged higher to 226,000, and continuing jobless claims dropped by 29,000 to 1.879 million for the week ending April 26.
Meanwhile, the Euro (EUR) remains under pressure as markets increasingly price in further rate cuts by the European Central Bank (ECB), possibly as soon as the June meeting. ECB officials have voiced concern over the Eurozone's economic outlook, although they maintain confidence that inflation will sustainably return to the 2% target by year-end.
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.