EUR/USD edges lower after four days of gains, trading around 1.1560 during the Asian hours on Tuesday. The pair holds losses as the US Dollar (USD) gains support amid growing hopes that the US government shutdown resolution is nearing. The US Senate passed a funding bill in a 60–40 vote, effectively ending the 41-day shutdown, with eight Democrats joining Republicans to advance the measure, which now moves to the House for approval.
US President Donald Trump, on Monday, backed a bipartisan deal to end the US government shutdown, signaling a likely reopening within days. Senate Majority Leader John Thune said he expects Trump to sign the bill once Congress passes it.
However, the Greenback faced challenges amid growing economic uncertainty in the United States (US), which fueled expectations for a near-term Federal Reserve rate cut. The CME FedWatch Tool shows markets pricing in a 62% chance of a 25 bps rate cut in December.
Fed Governor Stephen Miran told CNBC on Monday that inflation is easing and has reaffirmed that staying on course with rate cuts is appropriate, suggesting a 50-basis-point reduction in December, or at least 25 bps. Miran added that the economy is not at maximum employment and that all data since September support further easing.
The EUR/USD pair may regain its ground as the Euro (EUR) could receive support from the cautious tone surrounding the European Central Bank (ECB) policy outlook. Traders await Germany’s ZEW Survey data due later in the day.
Traders anticipate the ECB will keep interest rates unchanged for now, backed by steady economic performance and inflation near target. Money markets see only a 40% chance of a rate cut by September 2026.
ECB Vice President Luis de Guindos said Monday that current policy rates are appropriate, emphasizing the need for the bank to stay “very prudent and cautious,” despite reduced uncertainty following a recent US-EU trade deal.
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.
