- EUR/USD is softened to around 1.1325 in Thursday’s early Asian session.
- The US economy decreased by 0.3% in Q1, heavier than expected.
- Inflation data from the largest nations of the euro area confirms market expectations that the ECB may continue to reduce rates.
The EUR/USD pair trads with bland losses near 1.1325 during the early Asian session on Thursday, presses the renovated demand for American dollars (USD). The American dollar index (DXY) has advanced and achieved two -day maxima about 99.70. Later on Thursday, the report of the American Index of Manufacturing Manufacturing (PMI) will be in the attention center. Most markets will be closed on May 1 due to the holidays on Labor Day.
Traders slightly withdrew from the plants that the US Federal Reserve (FED) would reduce interest rates by a full percentage point this year after the data showed that the American economy concluded by the annual 0.3% in the last quarter. Despite this, Futures contracts are in June a reduction in the FED initial rate, with the expectations of four quarter points, reducing the rate to 3.25% -3.50% by the end of the year.
Data published on Thursday by the US Department of Trade showed that the American economy concluded a contract at an annual rate of 0.3% in the first quarter (Q1) of 2025. This number was weaker than the expected raise of 0.4% and fell from the previous expansion reading of 2.4%.
The report overtook further uncertain steps for the commercial policy of the US President Donald Trump. On Wednesday, Trump said that the American economy would “take some time” to show the result of the current policy and blames the stock exchanges for former US president Joe Biden.
The initial claims on the occasion of unemployment in the US are to appear later on Thursday, followed by the final Global Manufacturing PMI and ISM Manufacturing PMI. All eyes will be in the report on American payroll (NFP) on Friday, in which it is expected that in April in the American economy it will add 130,000 jobs. In the case of a weaker than expected result, this can drag the greenback lower and create a wind for EUR/USD.
In the pond, traders almost valued at 25 base points (BPS) reductions by the European Central Bank (EBC) at the June political meeting. EBC officials forecasted a further slowdown in inflation and economic growth in response to tariffs imposed by the US on their trading partners.
FAQ euro
The euro is the currency of 19 European Union countries, which belong to the euro area. This is the second most frequently commercial currency in the world behind the American dollar. In 2022, it accounted for 31% of all currency transactions, with an average daily turnover of over USD 2.2 trillion per day. EUR/USD is the most rotating currency pair in the world, which is about a 30%discount on all transactions, followed by EUR/JPy (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (EBC) in Frankfurt, Germany is a bank reserve bank. EBC sets interest rates and manages monetary policy. The main mandate of the ECB is to maintain price stability, which means either controlling inflation or stimulating growth. Its main tool is to raise or reduce interest rates. Relatively high interest rates – or waiting for higher feet – will usually bring the benefits of the euro and vice versa. The ECB Managing Council makes decisions regarding monetary policy at meetings taking place eight times a year. Decisions are made by the heads of national banks of the euro area and six constant members, including the President of EBC, Christine Lagarde.
Data on inflation in the euro area, measured by a harmonized consumer price indicator (HICP), are an critical econometric for the euro. If inflation increases more than expected, especially if it is above the target 2% EBC, it obliges EBC to raise interest rates to restore it to control. Relatively high interest rates compared to its counterparts will usually benefit the euro, because it makes the region more attractive as a place for global investors to park their money.
The data release the health of the economy and can affect the euro. Indicators such as GDP, PMI production and services, surveys regarding employment and consumer moods can affect the direction of the common currency. A mighty economy is good for the euro. It not only attracts more foreign investment, but can encourage EBC to set interest rates, which will directly strengthen the euro. Otherwise, if economic data is tender, the euro will probably fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are particularly significant because they constitute 75% of the euro area economy.
Another significant issue of data for the euro is the commercial balance. This indicator measures the difference between what the country earns on exports and what spends on imports in a given period. If the country generates a highly sought after export, its currency will gain value only from additional demand created by foreign buyers trying to buy these goods. Therefore, a positive net trade balance strengthens currency and vice versa for a negative balance.
