EUR/USD extends its gains for the fourth consecutive session, trading around 1.1710 during the Asian hours on Friday. The pair appreciates as the Euro (EUR) receives support after France’s government survived a no-confidence vote, as Prime Minister Sebastien Lecornu’s pledge to suspend a key pension reform won backing from some left-wing lawmakers.
Additionally, the Euro also draws support from the dovish outlook, contrasting with European Central Bank (ECB) projections, which suggest interest rates are likely to remain unchanged. ECB policymaker and Central Bank of Malta Governor Edward Scicluna said late Thursday that the central bank must not rush further interest-rate cuts. Scicluna added that it’s not clear whether higher trade tariffs will be disinflationary or inflationary, and we shouldn’t jump to conclusions as this is crucial.
ECB Governing Council member Martin Kocher said on Thursday, “I believe that we have reached the end of the interest rate reduction cycle or are at least very close to it.” Kocher further noted that it is “important to keep powder dry for potential crises.”
The EUR/USD pair rises as the US Dollar (USD) declines due to the ongoing US government shutdown, which will continue into next week after the Senate once again failed to pass a Republican bill to extend funding and end the stalemate, marking the tenth unsuccessful attempt on Thursday, the 16th day of the impasse.
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.
Source: https://www.fxstreet.com/news/eur-usd-moves-above-11700-as-frances-government-survives-a-no-confidence-vote-202510170348
