- In early Asian trading on Wednesday, EUR/USD registered a modest increase to around 1.0820.
- The number of job openings in the United States has fallen to its lowest level since the beginning of 2021.
- The ECB is widely expected to cut deposit facility rates again this year.
EUR/USD recovered to around 1.0820 early Wednesday Asian time. The upside for major currency pairs remains limited as uncertainty continues ahead of the US presidential election and the release of major US indicators is expected.
The number of job openings fell by 418,000 to 7.443 million through the end of September, the lowest level since January 2021, according to the Department of Labor's Bureau of Labor Statistics' Job Openings and Turnover Survey (JOLTS) report. This number was lower than the expected 7.99 million cases.
Meanwhile, the U.S. Conference Board's Consumer Confidence Index rose to 108.7 in October from an upwardly revised 99.2 in September and above the market consensus of 99.5. The figure was the highest in nine months as perceptions of the labor market improved.
Traders are increasingly betting that the US Federal Reserve will cut interest rates by only 25 basis points (bps) at its November meeting, attracting buyers for the US dollar (USD). October US ADP employment trends and third-quarter gross domestic product (GDP) growth, due later Wednesday, may provide hints about the size and pace of the Fed's interest rate cuts.
Across the pond, the European Central Bank (ECB) is widely expected to cut deposit facility rates again, but the question remains whether the ECB will continue its rate-cutting cycle at its usual 25 basis points (bps) pace or whether it will continue. Traders are divided on whether this is the case. Toward greater reductions. Money markets are still pricing in a nearly 50% probability that the ECB will cut interest rates by 0.5 percentage point at its December meeting.
Investors will be keeping an eye on Germany's consumer price index (CPI) inflation flash data, along with flash third-quarter GDP growth for Germany and the euro area. ECB President Schnabel is scheduled to give a speech later that day.
Euro Frequently Asked Questions
The euro is the currency of the 19 European Union countries that belong to the euro area. It is the second most traded currency in the world after the US dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily trading volume of over $2.2 trillion. EUR/USD is the most frequently traded currency pair in the world, accounting for an estimated 30% of all trades, followed by EUR/JPY (4%), EUR/GBP (3%), and EUR/AUD (2%). ) and so on.
The European Central Bank (ECB), located in Frankfurt, Germany, is the reserve bank of the euro area. The ECB sets interest rates and controls monetary policy. The ECB's main task is to maintain price stability, which means controlling inflation or stimulating growth. The main means is to raise or lower interest rates. Relatively high interest rates, or expectations of rising interest rates, usually benefit the euro, and vice versa. The ECB Governing Council decides monetary policy at its eight annual meetings. Decisions will be made by the heads of the euro zone national banks and the six permanent members of the ECB, including ECB President Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric indicator for the euro. If inflation rises more than expected, especially above the ECB's 2% target, the ECB will mandate interest rate hikes to rein in inflation. Relatively high interest rates compared to other countries typically benefit the euro, as it makes the region more attractive to global investors as a place to park their funds.
The data release will gauge the health of the economy and could have an 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 would that attract more foreign investment, but it could also prompt the ECB to raise interest rates, which could directly lead to a stronger euro. Otherwise, if economic indicators are weak, the euro is likely to weaken. Economic data for the euro area's four largest economies (Germany, France, Italy and Spain) is particularly important, as they account for 75% of the euro area economy.
Another important data regarding the euro is the trade balance. This indicator measures the difference between what a country earns from exports and what it spends on imports over a given period of time. If a country produces highly sought-after export goods, the value of its currency increases purely due to the additional demand generated from foreign buyers seeking to purchase these goods. Therefore, if the net trade balance is positive, the currency strengthens, and vice versa if it is negative.
