EUR/USD steadies near 1.1400 as hot US data supports Fed hold, eyes on NFP
- EUR/USD edges up 0.10% to 1.1417 despite stronger US inflation and jobs data.
- US Core PCE rises to 2.8% YoY; Initial Jobless Claims dip to 218K.
- Fed holds rates in 9–2 vote; Powell pushes back on September cut odds.
The EUR/USD recovered some ground on Thursday, up a modest 0.10% after data from the United States (US) revealed a strong economy, justifying the Federal Reserve’s reluctance to reduce rates, as witnessed on Wednesday. AT the time of writing, the pair trades at 1.1417, virtually unchanged.
Before Wall Street opened, the Fed’s preferred inflation gauge, the core Personal Consumption Expenditures (PCE) Price Index, exceeded estimates and the previous month's reading, indicating that prices are rising. Other data revealed that the labor market remains resilient, after the number of Americans filing for unemployment claims dipped below estimates.
A day ago, the US central bank held rates unchanged, with two dissenters. Fed Governors Michelle Bowman and Christopher Waller supported a 25 basis points (bps) interest rate cut. At the press conference, the Fed Chair Jerome Powell revealed that a rate cut in September is not a certainty, while adopting a meeting-by-meeting approach, with no rush to ease policy.
Consequently, the Greenback rose, as depicted by the US Dollar Index (DXY). The DXY, which tracks the performance of six currencies vs. the buck, advanced 0.16% to 100.05.
Across the pond, inflation in the European Union (EU) seems to remain around the European Central Bank (ECB) 2% goal, following the release of the Consumer Price Index (CPI) in Germany, France, Italy, and Spain.
Traders gear up for Friday’s Nonfarm Payroll figures for July, along with the announcement of the ISM Manufacturing PMI and the final University of Michigan (UoM) Consumer Sentiment index.
Daily digest market movers: EUR/USD stays firm despite a solid US jobless claim report
- Initial Jobless Claims fell to 218,000 for the week ending July 26, beating expectations of 224,000. The data comes ahead of Friday’s July Nonfarm Payrolls report, where economists forecast a gain of 110,000 new jobs.
- The Federal Reserve’s preferred inflation measure, Core PCE, increased by 2.8% year-over-year in June, up from 2.7% in May. Meanwhile, headline PCE accelerated to 2.6% from 2.3%, slightly above market expectations of 2.5%.
- The Federal Reserve monetary policy statement highlighted that economic growth moderated in the first half, though the unemployment rate remains low and inflation remains “somewhat elevated.”
- Furthermore, the committee added that its commitment to achieve maximum employment and inflation at a rate of 2% and acknowledged that “Uncertainty about the economic outlook remains elevated.”
- The release of stronger-than-expected Gross Domestic Product (GDP) figures for the second quarter in the US, along with solid ADP Employment Change figures, justified Fed Chair Powell's comments that the economy is not behaving as if monetary policy were restrictive.
- Across the pond, Germany’s inflation dipped from 2% to 1.8%, while figures in Italy eased from 1.8% to 1.7%. Prices in France were unchanged at 0.9% above estimates of 0.8% and Spanish inflation rose from 2.3% to 2.7%.
- Regarding the ECB’s monetary policy, Deutsche Bank does not expect further cuts and hints that the next move would be a hike by the end of 2026.
Technical outlook: EUR/USD shifts neutral after stalling at around 1.1400
The EUR/USD stopped its drop at around 1.1401 with buyers emerging at that level, as the 100-day Simple Moving Average (SMA) at 1.1361 was under threat of being broken, if bears cracked to the 1.1400 mark. The Relative Strength Index (RSI) shows that sellers are in charge but are taking a respite after diving to 34.60; the RSI rose to 34.70. However, further downside on the pair is seen.
If EUR/USD tumbles below 1.1400, the next test would be the 100-day SMA and 1.1300. Conversely, if the pair climbs above 1.1500, the 50-day SMA would be up for grabs at 1.1572.
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.