There are a variety of factors that influence the price of EUR against other currencies. These include monetary policy decisions from the ECB, economic data, as well as balance of payments (export and import values).
Traders should be aware of ECB meeting dates and the release dates of key reports to help them keep on top of developments. Check out our economic calendar and don’t miss the latest announcements that can move markets.
It’s important to note that while EUR may be strengthening or weakening, you still have to consider how the other currency in the pair is performing before assessing the reasons for a pair’s moves.
Monetary policy
The ECB controls monetary policy and its governing council sets rate targets. Through its governing council, the ECB may look to raise interest rates to control inflation or lower rates to encourage borrowing and consumer spending. Higher rates tend to stimulate foreign investment, meaning the demand for that particular currency is greater. In turn, this means EUR is likely to strengthen against a basket of other currencies.
What that said, many analysts believe, as of July 2021, that interest rates are unlikely to rise across the Eurozone for some time due to a perception that a spike in inflation may be transitory, as well as a belief that policymakers are more focused on a recovery from the coronavirus pandemic than inflationary pressures.
Conversely, when interest rates are lowered in an attempt to stimulate economic growth, investors may seek currencies with a better return, pushing the EUR price down.
However, EUR can also suffer when rates are expected to be lowered but are not. In March 2020, the euro plunged against USD when the ECB approved stimulus measures following the economic disruption caused by the pandemic, but failed to lower interest rates, an action which could have been a lifeline for stricken businesses. Instead, market speculators opted for the safe haven of USD at that point.
However, in the following months, EUR surged against greenback as the €750 billion European recovery fund was approved by the European council.
News reports
News reports to look out for when trading EUR include sentiment, which shows whether traders are net long or short. This may encompass data such as the German ZEW Survey, a widely-cited measure of analyst expectations for the economic outlook.
Inflation data such as CPI figures covering the major Eurozone economies can also be helpful, as well as stats around consumer confidence, and of course GDP data, the definitive measure of economic activity in leading Eurozone countries.
Other measures of how the economy is doing can be found in retail sales, and services and manufacturing PMIs for relevant territories.
Political/socioeconomic events
Political and socioeconomic influences can hit the euro hard due to the sometimes discordant relationship between the key players of the monetary union’s governance. For example, the 2011 sovereign debt crisis that swept through a range of European countries placed the ECB at odds with other European leaders and saw EUR plunge as a result.