EUR/USD slumps to two-year low as growth concerns weigh
- EUR/USD shed another full percent as Euro fears simmer.
- European Manufacturing PMI missed the mark, implying steepening contraction expectations.
- ECB policies are expected to diverge steeply from the Fed this year.
EUR/USD dumped another full percentage point on Thursday, kicking off 2025 with its lowest prices in two years. The Euro fell below 1.0250 against the Greenback since November of 2022 and putting Fiber on pace to close for a fourth straight month in the red if things don’t improve in January.
Pan-European Manufacturing Purchasing Managers Index (PMI) survey results fell slightly in December, ticking down to 45.1 versus the expected hold at 45.2. While the data itself had a relatively low impact, it helped to highlight the increasing likelihood that the European Central Bank (ECB) would accelerate rate cuts to bolster the European economy, even as petrol prices hit their own two-year highs.
Coupled with a Federal Reserve (Fed) that is set to cut rates slower than expected, the interest rate divergence underpinning EUR/USD is set to widen dramatically in the coming months. Some analysts expect the Euro to return to parity against the US Dollar sometime in the next 12 months.
EUR/USD price forecast
EUR/USD is down 8.82% top-to-bottom from September’s peak bids just above the 1.1200 handle, though short-sellers remain unable to pierce 1.0200 for now. A bearish divergence on the Moving Average Convergence-Divergence (MACD) indicator is getting hard to ignore, implying further technical losses on the horizon.
Fiber bids are getting pushed further down by a descending 50-day Exponential Moving Average (EMA) falling into 1.0550. If bidders are able to stage a comeback beyond this point, the 200-day EMA will be waiting just above at 1.0760.
EUR/USD daily chart
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.