Euro trims gains on downbeat Eurozone PMIs and Fed Williams comments
- The Euro approaches 1.0900 on weak Eurozone PMIs and a stronger US Dollar.
- Fed Williams’ hawkish comments give a fresh boost to the US Dollar.
- The Fed’s dovish pivot remains a headwind for the Greenback.
The Euro (EUR) extended its reversal on Friday’s early US session as Federal Reserve (Fed) President and CEO, John Williams cooled hopes of interest rate cuts in March. Wulliam’s comments offset the impact of a downbeat US NY Empire State Manufacturing Index, which fell to -14.5 its lowest level in the last 7 months.
Earlier on Friday, Eurozone business activity data disappointed, casting doubts on the European Central Bank’s (ECB) hawkish message. December’s Preliminary HCOB Services PMI fell to 48.1 from 48.7 in November, against expectations of a moderate improvement to 49. The data suggests that the Eurozone’s key services sector’s activity contracted at a faster pace than in the previous month.
Likewise, the Manufacturing PMI remained unchanged at 44.2, when the market anticipated an improvement to 44.6. Any PMI reading below 50 signals contraction.
These figures suggest the weak contribution to the GDP by both sectors. This raises questions about the bank’s ability to keep the interest rates at high levels for a long time, as ECB President Christine Lagarde pledged after Thursday’s monetary policy meeting.
Later today, the US S&P Global PMIs are expected to come in line with the idea of a soft landing for the US economy, which might add negative pressure on the US Dollar.
Daily digest market movers: Euro rally stalls as Eurozone business activity data disappoints
- The Euro lost pace on Friday after German and French PMI data signaled weaker-than-expected Eurozone PMI figures.
- The Dollar bounced higher after Fed Williams affirmed that the bank might hike rates again if needed and played down hopes of rate cuts in March.
- Eurozone preliminary HCOB Manufacturing PMI for December remained steady at 44.2 against market expectations of a 44.6 reading.
- Services sector activity deteriorated to 48.1 from 48.7 against expectations of a moderate pick up to 49.
- The European Central Bank warned about an uptick in inflation in the near term and played down speculation about rate cuts in the coming months.
- The USD remains near recent lows against its main peers, weighed by the idea that the Federal Reserve (Fed) will be the first major bank to start cutting rates.
- Futures markets are pricing in a 70% chance of 25 bps cuts at the Fed’s March meeting, up from 40% before the Fed’s Wednesday meeting.
- The Fed signaled the end of the tightening cycle and suggested that rate cuts are coming “into view,” which has sent US bond yields tumbling, dragging the US Dollar down with them.
- Data from Thursday showed that US Retail Sales increased against expectations of a decline, and that jobless claims fell to their lowest levels since mid-October. The impact on the USD was marginal.
Technical Analysis: Euro fails at 1.1010 with bulls still in control
The Euro rally from last week’s lows near 1.0700 has been capped right at November’s high of 1.1010, and the pair pulled back. The near-term bullish trend is still active as downside attempts remain contained above 1.0900.
The pair is going through a corrective reversal after reaching heavily oversold levels on intraday charts. Below 1.0900, the pair would test the 100 Simple Moving Average (SMA) at 1.0879, which is closing the path towards last week’s lows at 1.0730.
On the upside, the Euro should breach 1.1010 to regain bullish momentum and aim for the August high, at 1.1060, ahead of the July 24 and 27 high, at 1.1150.
Euro price this week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -1.78% | -1.63% | -1.52% | -2.06% | -2.42% | -1.59% | -1.56% | |
| EUR | 1.75% | 0.14% | 0.26% | -0.27% | -0.63% | 0.19% | 0.24% | |
| GBP | 1.62% | -0.14% | 0.12% | -0.42% | -0.76% | 0.04% | 0.08% | |
| CAD | 1.50% | -0.26% | -0.12% | -0.54% | -0.89% | -0.07% | -0.04% | |
| AUD | 2.02% | 0.28% | 0.42% | 0.54% | -0.35% | 0.46% | 0.50% | |
| JPY | 2.38% | 0.64% | 0.69% | 0.89% | 0.36% | 0.82% | 0.85% | |
| NZD | 1.56% | -0.19% | -0.04% | 0.07% | -0.47% | -0.81% | 0.03% | |
| CHF | 1.52% | -0.23% | -0.09% | 0.03% | -0.51% | -0.85% | -0.05% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
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.