EUR/USD retreats below 1.1400 after US NFP data
- EUR/USD stays under bearish pressure and trades below 1.1400 on Friday.
- Nonfarm Payrolls in the US rose by 139,000 in May.
- Markets lean toward a Fed policy hold in July after the employment data.
Following a quiet beginning to the European session, EUR/USD turned south in the second half of the day and declined below 1.1400. At the time of press, EUR/USD was down 0.55% on the day at 1.1382.
The US Dollar (USD) benefited from the labor market data and weighed on EUR/USD in the American session on Friday.
The US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls rose by 139,000 in May. This reading came in above the market expectation of 130,000. In this period, the Unemployment Rate remained unchanged at 4.2%, as forecast.
The CME Group FedWatch Tool's probability of a 25 basis points (bps) rate cut in July dropped below 20% from about 30% before the release of the employment report. Reflecting the renewed USD strength, the USD Index was last seen 0.55% on the day at 99.25.
The US economic calendar will not feature any high-tier data releases in the remainder of the day. Meanwhile, Wall Street's main indexes trade decisively higher following the opening bell on improving sentiment around the US economic outlook.
Earlier in the week, the European Central Bank (ECB) announced that it lowered key rates by 25 bps after the June policy meeting. Commenting on the policy outlook, ECB President Christine Lagarde said that they might be approaching the end of the easing cycle.
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.