Forex News
- US Dollar Index holds steady around 98.20 in Monday’s early Asian session.
- Trump said the US will help vessels exit the Strait.
- Traders brace for the US employment report for April, which is due on Friday.
The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, currently trades near 98.20 during the Asian trading hours on Monday. The DXY steadies as traders continue to assess geopolitical tensions in the Middle East.
US President Donald Trump said the US will begin guiding some neutral ships trapped in the Persian Gulf out through the Strait of Hormuz beginning Monday. Bloomberg reported that US Navy ships will stay nearby if needed to stop the Iranian military from attacking commercial vessels in the Strait.
An Iranian official warned that US interference in Hormuz will be considered a violation of the ceasefire, adding that the Strait of Hormuz and the Persian Gulf are not a place for rhetoric. Traders will closely monitor the developments surrounding the Middle East conflict and a continued blockade of the Strait of Hormuz. Any signs of escalating tensions could lift the US Dollar as a safe-haven currency.
All eyes will be on the US employment report for April, which is due later on Friday. The US economy is expected to see 73K job additions in April, while the Unemployment Rate is projected to remain steady at 4.3% during the same period. If the report shows a weaker-than-expected outcome, this could drag the DXY lower in the near term.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
- Silver trims gains as easing safe-haven demand amid US–Iran talks weighs on prices.
- Donald Trump said the US will escort neutral ships through the Strait of Hormuz starting Monday.
- Iran proposed a one-month deadline for talks to reopen the Strait of Hormuz and end conflicts in Iran and Lebanon.
Silver price (XAG/USD) declines after opening at a gap up, but remains in the positive territory and trades around $75.40 per troy ounce during the Asian hours on Monday. The white metal trims its daily gains amid easing safe-haven demand, as traders evaluate progress in the United States (US)–Iran peace negotiations.
A Sunday report by Bloomberg indicated that Donald Trump said the United States will begin guiding neutral ships trapped in the Persian Gulf out through the Strait of Hormuz starting Monday. The initiative is intended to help civilian vessels from non-aligned countries exit the contested waterway and resume normal operations.
Mediation efforts to end the war have continued as the conflict in Iran enters its third month. Iran said it is reviewing Washington’s response to its latest 14-point proposal, boosting optimism for a diplomatic resolution to the conflict. Trump suggested that Tehran’s latest peace proposal may fall short of expectations, Bloomberg reported Sunday.
According to Axios, citing sources familiar with the matter, Iran has proposed setting a one-month deadline for talks aimed at reopening the Strait of Hormuz and ending both the US naval blockade and the conflicts in Iran and Lebanon.
The non-yielding Silver faced headwinds as the Middle East conflict has driven energy prices sharply higher and increased inflation risks, raising concerns that central banks may keep interest rates elevated for longer or even tighten policy further.
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
- NZD/USD shows some resilience below 0.5900 and attracts some dip-buyers on Monday.
- US-Iran tensions and reviving Fed rate cut bets support the USD and might cap the pair.
- Traders this week will take cues from NZ employment details and the key US NFP report.
The NZD/USD pair attracts some dip-buyers at the start of a new week and climbs back above the 0.5900 mark during the Asian session. Bulls, however, need to wait for a convincing breakout through the 0.5920-0.5925 horizontal barrier before positioning for any further gains, as the focus remains glued to developments surrounding the Middle East crisis.
US President Donald Trump announced over the weekend that the US will begin guiding neutral ships stranded in the Strait of Hormuz under an operation called Project Freedom and added that if this process is disrupted, we will deal with it by force. In response, Ebrahim Azizi, head of the Iranian parliament's National Security Commission, issued a formal warning that any US interference in the strategic waterway would constitute a ceasefire violation. This keeps geopolitical risks in play, which could benefit the safe-haven US Dollar (USD) and act as a headwind for the NZD/USD pair.
Meanwhile, Minneapolis Federal Reserve (Fed) President Neel Kashkari said on Sunday that a prolonged Iran conflict increases inflation risks and economic damage. Moreover, Kashkari raised the possibility of moving rates higher, citing uncertainty around all aspects of the war. This turns out to be another factor underpinning the USD. However, expectations that the Reserve Bank of New Zealand (RBNZ) would maintain a cautious stance or consider tightening to bring inflation back to the 2% midpoint counter the negative factors, supporting the New Zealand Dollar (NZD) and the NZD/USD pair.
The mixed fundamental backdrop, in turn, makes it prudent to wait for a sustained strength beyond the aforementioned barrier before positioning for the resumption of the recent strong move up from the April monthly swing low. There isn't any relevant economic data due for release from the US on Monday, leaving the USD at the mercy of geopolitical headlines. Traders this week will further take cues from key US macro releases, including the Nonfarm Payrolls (NFP) report, which, along with the quarterly employment report from New Zealand, should provide a fresh impetus to the NZDUSD pair.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
- USD/CAD holds firm as commodity-linked Canadian Dollar weakens amid lower oil prices.
- WTI struggles after Bloomberg reports Donald Trump plans to escort ships via the Strait of Hormuz.
- Iran proposed a one-month deadline for talks to reopen the Strait of Hormuz and end conflicts in Iran and Lebanon.
USD/CAD inches higher for the second successive day, trading around 1.3590 during the Asian hours on Monday. The pair remains stronger as the commodity-linked Canadian Dollar (CAD) faces challenges amid lower oil prices. West Texas Intermediate (WTI) oil price remains in the negative territory for the third successive day, trading around $98.50 per barrel at the time of writing.
Crude oil prices struggled following a Sunday report by Bloomberg indicating that Donald Trump said the United States will begin guiding neutral ships trapped in the Persian Gulf out through the Strait of Hormuz starting Monday.
However, Ebrahim Azizi, a former commander in Iran’s Islamic Revolutionary Guards Corps (IRGC) and current head of the parliamentary National Security and Foreign Policy Committee, said any US interference in the new maritime regime of the Strait of Hormuz would be considered a violation of the ceasefire. He added that the Strait of Hormuz and the Persian Gulf are not a place for rhetoric.
The upside in USD/CAD may remain limited as the US Dollar (USD) struggles amid easing safe-haven demand, with traders assessing progress in US–Iran peace negotiations. Mediation efforts to end the conflict have continued as the war in Iran enters its third month. Donald Trump hinted that Tehran’s latest peace proposal may fall short of expectations, Bloomberg reported Sunday.
According to Axios, citing sources familiar with the matter, Iran has proposed setting a one-month deadline for talks aimed at reopening the Strait of Hormuz and ending both the US naval blockade and the conflicts in Iran and Lebanon.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
Reserve Bank of New Zealand (RBNZ) board member Prasanna Gai said on Monday that pre-emptive tightening requires strong synchronization and an active coordination mechanism.
Key quotes
Nothing suggests an automatic tightening bias.
Pre-emptive tightening justified only when synchronization is strong and coordination mechanism active.
Conditions Justify the Look-Through Approach Recommended by Conventional Framework.
Market reaction
At the time of writing, the NZD/USD pair is trading around 0.5910, up 0.20% on the day.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
- GBP/USD edges higher to around 1.3580 in Monday’s early Asian session.
- Traders will closely monitor the developments surrounding the Middle East.
- The BoE and the Fed left the interest rates unchanged at the April policy meeting last week.
The GBP/USD pair posts modest gains near 1.3580 during the Asian trading hours on Monday. Nonetheless, the potential upside for the major pair might be limited amid Middle East uncertainty. The US employment report for April will take center stage later on Friday.
Markets could turn cautious after US President Donald Trump said the US would start an effort on Monday morning to free ships stranded in the Strait of Hormuz as a "humanitarian gesture" to aid neutral countries in the US-Israeli war with Iran. An Iranian official warned that US interference in Hormuz will be considered a violation of the ceasefire, adding that the Strait of Hormuz and the Persian Gulf are not a place for rhetoric.
Iran earlier claimed that the US had reacted to its 14-point plan through Pakistan, and it was reviewing the response, though Trump said it was unlikely to be acceptable. Signs of rising tensions in the Middle East could boost a safe-haven currency such as the US Dollar (USD) and create a headwind for the major pair.
Last week, both the Bank of England (BoE) and the US Federal Reserve maintained current interest rates. BoE Governor Andrew Bailey said if price pressures triggered by the conflict proved to be severe, a “forceful tightening” would be required. Bailey played down fears of near-term rate hikes but added that "we'll continue to monitor the situation and its impact on the UK economy very closely.”
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling 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, its currency will benefit 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.
- WTI attracts some dip-buying following a modest bearish gap down opening on Monday.
- Rising Iran tensions and Hormuz risks turn out to be key factors supporting the commodity.
- The OPEC+ decision to increase Oil output and a modest USD rebound cap further upside.
West Texas Intermediate (WTI) – the benchmark US Crude Oil price – rebounds following a bearish gap opening to the $96.45 area on Monday, though it sticks to modest intraday losses through the Asian session. The commodity currently trades just above mid-$98.00s, still down over 1% for the day, amid mixed cues.
US President Donald Trump announced over the weekend that the US would begin an effort to free up ships stranded in the Strait of Hormuz. In response, Ebrahim Azizi, head of the Iranian parliament's National Security Commission, issued a formal warning that any US interference in the strategic waterway would constitute a ceasefire violation. This, in turn, raises the risk of a further escalation of tensions in the region and revives concerns about a further disruption of supplies through the Strait. Apart from this, the lack of progress in the US-Iran peace talks turned out to be a key factor acting as a tailwind for Crude Oil prices.
Meanwhile, the Organization of the Petroleum Exporting Countries and its allies, or OPEC+, agreed to increase oil output for the third consecutive month, by 188,000 barrels per day in June for seven members. Moreover, the emergence of some US Dollar (USD) dip-buying keeps Crude Oil prices in the red for the third consecutive day. Persistent geopolitical uncertainties, along with reviving bets for a rate hike by the US Federal Reserve (Fed), support the Greenback. This warrants some caution before confirming that the recent pullback from a nearly two-month high, touched last Thursday, has run its course.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
- EUR/USD falls as Trump signals US tariffs on EU cars and trucks rising to 25% from 15%.
- US Dollar trims daily losses as risk aversion rises on escalating Middle East tensions.
- Trump plans escorting ships via Strait of Hormuz; Ebrahim Azizi warns US role violates ceasefire.
EUR/USD depreciates after opening at the bullish gap, remaining in the positive territory and trading around 1.1720 during the Asian hours on Monday. The pair declined as the Euro (EUR) faces challenges, which could be attributed to the recent comments from President Donald Trump, indicating the US will raise tariffs on European Union (EU) cars and trucks to 25% from 15% this week, citing alleged breaches of a trade deal.
Trump said in a social media post, warning EU-made vehicles would face higher duties unless production shifts to US plants, aiming to push carmakers to localize output. The European Commission rejected the claim, saying it is complying with last summer’s agreement and vowing to defend EU interests if Washington violates the deal.
The EUR/USD pair also loses ground as the US Dollar (USD) pares its daily losses amid increased risk aversion driven by escalating tensions in the Middle East. Bloomberg reported on Sunday that Donald Trump said the United States will begin guiding some neutral ships trapped in the Persian Gulf out through the Strait of Hormuz starting Monday.
Ebrahim Azizi, a former commander in Iran’s Islamic Revolutionary Guards Corps (IRGC) and current head of the parliamentary National Security and Foreign Policy Committee, said that any US interference in the new maritime regime of the Strait of Hormuz would be considered a violation of the ceasefire. He added that the Strait of Hormuz and the Persian Gulf are not a place for rhetoric.
Euro FAQs
The Euro is the currency for the 20 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.
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