EUR/USD depreciates to near 1.1150 ahead of speeches from ECB Lane, Cipollone

• EUR/USD edges lower due to market caution ahead of US Personal Consumption Expenditures data release on Friday.
• Fed Governor Lisa Cook has expressed support for last week's 50 basis point rate cut, pointing to heightened "downside risks" to employment.
• Traders await speeches from ECB’s Philip Lane and Piero Cipollone scheduled later in the day.

EUR/USD retraces its recent gains registered in the previous session, trading around 1.1170 during the Asian session on Friday. The US Dollar (USD) receives support as traders adopt caution ahead of the US Personal Consumption Expenditures (PCE) Price Index data for August. The Fed’s preferred inflation indicator is scheduled to be released later in the North American session.

On the data front, the US Gross Domestic Product Annualized increased at a rate of 3.0% in the second quarter, as estimated, according to the US Bureau of Economic Analysis (BEA) on Thursday. Meanwhile, the GDP Price Index rose 2.5% in the second quarter.

Additionally, US Initial Jobless Claims for the week ending September 20 were reported at 218K, according to the US Department of Labor (DoL). This figure came in below the initial consensus of 225K and was lower than the previous week's revised number of 222K (previously reported as 219K).

However, the US Dollar might have received downward pressure following the dovish remarks from the US Federal Reserve (Fed) officials. Fed Governor Lisa Cook stated on Thursday that she supported last week's 50 basis point (bps) interest rate cut, citing increased "downside risks" to employment, according to Reuters.

European Central Bank (ECB) Chief Economist Philip Lane will likely to deliver the opening remarks at a conference focused on Fiscal Policy, Financial Sector Policy, and Economic Growth in Dublin, Ireland. Meanwhile, ECB board member Piero Cipollone will give a keynote speech at the "Economics of Payments XIII" conference, organized by the Austrian Central Bank.

Euro FAQs

What is the Euro?

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%).

What is the ECB and how does it impact the Euro?

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.

How does inflation data impact the value of the Euro?

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.

How does economic data influence the value of the Euro?

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.

How does the Trade Balance impact the Euro?

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.

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