- EUR/USD falls slightly to near 1.1630 as the Euro hits by French political uncertainty.
- French PM Bayrou might lose confidence vote on September 9.
- The ousting of Fed Governor Cook has dampened the outlook of the US Dollar.
The EUR/USD pair edges lower to near 1.1630 during the Asian trading session on Wednesday. The major currency pair faces a slight selling pressure as political uncertainty in France has weighed on the Euro (EUR).
The existence of Prime Minister (PM) François Bayrou’s minority government has come under threat as all three opposition parties of France have expressed that they won’t back a confidence vote over his €44 billion budget package on September 8.
Political uncertainty in France led to a meltdown in French assets on Tuesday. CAC 40 ended 1.7% down in Tuesday’s trade.
On the economic front, the Euro will be influenced by the inflation data from major states of the Eurozone, which will be published on Friday.
Additionally, some sort of stability in the US Dollar (USD) has also weighed on the major currency pair. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks up to near 98.35 during the press time.
However, the outlook of the US Dollar is uncertain as the announcement of Federal Reserve (Fed) Governor Lisa Cook’s termination by United States (US) President Donald Trump over mortgage allegations has made a serious crack on central bank’s independence.
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.
