Euro nudges higher above 1.1450 as US yields, oil retreat
- EUR/USD posts modest gains near 1.1480 in Friday’s early Asian session.
- Easing Treasury yields and a pullback in oil weigh on the US Dollar.
- ECB policymakers see risk of higher inflation.
The EUR/USD pair trades with mild gains around 1.1480 during the early Asian session on Friday. The US Dollar (USD) edges lower against the Euro (EUR) amid lower US Treasury yields and moderating oil prices. Federal Reserve (Fed) Governor Michelle Bowman is set to speak later on Friday.
The 10-year US Treasury yield fell eight basis points (bps) to 4.94% from the previous session. The move was aided by a further drop in oil prices from their highest levels since mid-May. Though the Fed delivered hawkish expectations for now, it might still not raise rates as aggressively as the market expects, making the Greenback vulnerable to any disappointment.
Fed policymakers project one more rate hike later this year and a hold in 2027, while traders are pricing in more than one additional increase in 2026 and roughly three more by the end of 2027.
The European Central Bank (ECB) decided to raise its key deposit rate by 25 bps to 2.50% from 2.25% in a move widely expected by investors. The central bank reiterated it won’t pre-commit to further steps after raising rates for a second time since the Iran war started.
ECB President Christine Lagarde warned that the Middle East conflict and recent developments in Russia’s war on Ukraine will keep headline inflation “well above target” the central bank’s 2% target for an extended period.
Euro inflation steadies as ECB hawkish tone keeps rate hike odds alive
Strategists at Scotiabank note that the latest euro area inflation data did little to shift the policy narrative, with the “final euro area CPI release offered little in terms of surprise, with headline inflation remaining in the low 3% area and core hovering in the mid-2% range.” Against this backdrop, they highlight that “messaging from the ECB remains hawkish,” and that markets are now “pricing just over 50% chance of a hike in October with a cumulative 36bpts of tightening by December,” reinforcing expectations that policymakers may still deliver additional tightening before year-end.
Technical Analysis: EUR/USD keeps a bearish vibe under the 100-day SMA
In the daily chart, EUR/USD retains a bearish near-term bias as spot remains below the 100-day simple moving average (SMA) and the Bollinger middle band. Price hovers just above the lower Bollinger band, hinting at downside pressure, while the Relative Strength Index (14) at 35.35 stays close to the oversold threshold, suggesting that selling momentum is still present but not yet extreme.
On the topside, initial resistance is seen at the 100-day SMA at 1.1550, followed by the Bollinger middle band around 1.1595, with a stronger cap at the upper Bollinger band near 1.1715. On the downside, immediate support is aligned with the lower Bollinger band at 1.1475, and a sustained break beneath this floor would likely open the way to further losses in the pair.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.