Market Data 
- EUR/USD edges higher to 1.0885 in Friday’s early Asian session.
- US inflation increased slightly in September and moved closer to the Fed’s target.
- ECB policymakers expect a temporary increase in inflation later this year.
The EUR/USD pair extends the rally to 1.0885 during the early Asian session on Friday. The uptick of the major pair is bolstered by the weakening of the US Dollar (USD). All eyes will be on the US Nonfarm Payrolls (NFP), which is due later on Friday.
The US Personal Consumption Expenditures (PCE) Price Index, rose 2.1% on a yearly basis in September, compared to 2.2% in August, the US Bureau of Economic Analysis (BEA) reported on Thursday. This figure came in line with market expectations. On a monthly basis, the PCE increased 0.2%, as expected.
Meanwhile, the core PCE Price Index, which excludes volatile food and energy prices, jumped 2.7% in the same period, matching August’s rise and above the market estimation of 2.6%. The core PCE Price Index rose 0.3% on a monthly basis, in line with the consensus.
Traders will keep an eye on the release of US employment data on Friday, including the Nonfarm Payrolls (NFP), Unemployment Rate and Average Hourly Earnings. The stronger-than-expected outcome could dampen the hope for larger bets of the US Federal Reserve (Fed) rate cut, boosting the Greenback against the Euro (EUR).
Across the pond, the European Central Bank (ECB) noted that inflation pressures remain high, driven by wage growth. During its latest meeting in October, the ECB reiterated its commitment to a “data-dependent and meeting-by-meeting” approach to future policy decisions. The money markets are currently pricing in a 34 basis points (bps) rate cut, down from 42 bps in the previous day, suggesting that the possibility of a larger 0.5% cut is diminishing.
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.
