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EUR/USD inches lower to near 1.1550 ahead of HCOB PMI data from Eurozone, Germany

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EUR/USD inches lower to near 1.1550 ahead of HCOB PMI data from Eurozone, Germany

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update 2025.08.05 12:44
EUR/USD inches lower to near 1.1550 ahead of HCOB PMI data from Eurozone, Germany

update 2025.08.05 12:44

  • EUR/USD faces challenges as the US Dollar appreciates amid increased risk aversion.
  • Traders await HCOB PMI data from the Eurozone and Germany due later on Tuesday.
  • CME's FedWatch Tool indicates that markets are pricing in a 91.6% probability of the Fed rate cut next month.

EUR/USD extends its losses for the second consecutive day, trading around 1.1560 during the Asian hours on Tuesday. The pair depreciates as the US Dollar (USD) gains ground following traders' caution, driven by the latest global trade developments and shifting expectations for monetary policy. Market participants will likely observe the HCOB Composite and Services Purchasing Managers' Index (PMI) data from the Eurozone and Germany later in the day. Focus will shift toward the US ISM PMI later in the North American session.

The market sentiment turns cautious over rising concerns over the Federal Reserve's (Fed) independence. US Federal Reserve (Fed) Governor Adriana Kugler unexpectedly resigned on Monday. This event has provided US President Donald Trump an earlier-than-anticipated opportunity to influence the central bank. Trump may nominate a replacement potentially more aligned with his calls for lower rates.

However, the Greenback may struggle amid rising odds of an interest rate cut by the US Federal Reserve (Fed) in September, following weaker labor market data that has heightened concerns over the US economic outlook. According to CME's FedWatch Tool, markets are pricing in a 91.6% chance of a Federal Reserve rate cut next month.

Additionally, San Francisco Fed President Mary C. Daly said late Monday that although there are plenty of reasons to start looking at interest rate cuts, there remains plenty of uncertainty, making it difficult for Fed officials to step into rate trimming too quickly. We can't wait to be certain there is no inflation persistence, need to make a call based on what's most likely, Daly added.

In comparison, the European Central Bank (ECB) is expected to hold rates steady as the Eurozone annual inflation held at 2.0% in July, slightly above the 1.9% forecast. Meanwhile, traders adopt caution amid the imposition of 15% US tariffs on goods imported from the European Union (EU).

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.


Date

Created

 : 2025.08.05

Update

Last updated

 : 2025.08.05

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