The EUR/USD currency pair reached a six-week high on Thursday as the U.S. Federal Reserve announced a 25-basis-point rate hike, causing the greenback to weaken in value compared to other G7 currencies.
The Fed’s rate hike decision comes despite recent uncertainty in the banking sector. However, Fed Chair Jerome Powell stated that there would be no further rate cuts this year, as the FOMC participants do not see them as their baseline expectations.
The U.S. Treasury is exploring ways to guarantee client deposits, should any banks face liquidity issues. It appears that lowering inflation remains the priority for the Fed.
EUR/USD reached an intraday high of $1.0929 during Thursday’s trading session, the highest rate since February 3.
With the current volatile market conditions, it is crucial for traders to keep abreast of global news, market happenings, and currency pair trends to make informed trading decisions confidently.
Understanding the EUR/USD Currency Pair
One of the most popular currency pairs globally, the EUR/USD currency pair represents the exchange rate of the euro and the U.S. dollar.
It is regarded as a benchmark for measuring global economic and political developments and is a hallmark of the foreign exchange market.
The EUR/USD currency pair is amongst the top-rated currency pairs since the two currencies are the most widely traded globally, and the transaction volumes are significant.
Factors Influencing The EUR/USD Currency Pair
Economic Factors
The euro’s value against the U.S. dollar is influenced by economic fundamentals such as interest rates, inflation rates, GDP, and monetary policies.
Interest Rates: Interest rates can have a profound effect on currency valuation. Interest rate differentials between the European Central Bank and the Federal Reserve is a key determinant of the EUR/USD rate. Higher interest rates make the currency more attractive to investors, increasing its value.
Inflation Rate: Higher inflation rates lead to the currency being less valuable. Lower inflation rates boost the currency’s value, making it more attractive.
Monetary Policies: Monetary policies impact currencies, with interest rate policies playing a significant role in the value of the EUR/USD currency pair. The monetary policies of the Federal Reserve and the European Central Bank can influence the rate.
Economic Factors in the United States
The U.S. dollar’s value is influenced by the strength and growth of the U.S. economy.
GDP Growth: Gross Domestic Product of the United States measures its economic growth rate. A higher GDP leads to an increase in the value of the dollar.
Inflation Rates: Inflation rates in the US are a crucial determinant of the dollar’s value against other currencies. Higher inflation rates make the U.S. dollar lose its value, and lower inflation rates increase the dollar’s value.
Trade Wars: Trade Wars can have a significant impact on the value of currencies. The US-China trade conflict has impacted the value of the dollar over the past few years.
Political Factors
Political events can influence currencies, with political and economic changes resulting in fluctuations in the EUR/USD currency pair.
Brexit: The decision of the UK to leave the European Union had a significant impact on the GBP, resulting in fluctuations in the EUR/USD currency pair.
European Elections: Political and economic events in the European Union can impact the value of the EUR. Political uncertainty in Europe is usually reflected in the currency markets.
In Conclusion
The EUR/USD currency pair is a crucial benchmark for measuring global economic growth and political developments.
Traders need to keep abreast of global news and market happenings, key economic fundamentals like inflation rates, interest rates, GDP, and other factors to make informed trading decisions confidently.
Factors such as monetary policies, inflation rates, and political events can influence currency pairs like the EUR/USD. By understanding these factors, traders can make educated trading decisions and trade profitably.
