Euro area GDP up next: Can the Euro sustain its rebound from a new low?

EUR/USD rebounds to just below 1.1200 following a fall beneath its 14 October low.
Following a unanimous decision to leave rates unchanged, ECB President Lagarde signals a likely December hike.
After a 3.8% reading, the next euro area inflation release for October is scheduled for Wednesday, 4 November.

EUR/USD has rebounded above Wednesday's high after falling below its 14 October low, with European Central Bank (ECB) President Lagarde indicating that another December rate hike remains likely. Having reversed from just above 1.1100, the pair now trades just below 1.1200, close to its session peak and heading for a second consecutive advance.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

After two rate increases since the Iran war drove energy prices higher, the ECB left its deposit rate unchanged at 2.50%. According to ECB President Lagarde, policymakers considered a third increase before voting unanimously to hold. EUR/USD started recovering during her question-and-answer session, while money markets assigned a probability of more than 80% to that hike taking place in December.

In a video released ahead of the decision, ECB President Lagarde announced that she would step down on 7 February, roughly nine months before her term expires. The subsequent rate announcement marked EUR/USD's session trough. Goldman Sachs said the ECB would likely act in the same manner regardless of who succeeds her.

Which releases could shape December rate decisions?

Three upcoming events have a bearing on the December rate hike. Friday brings the preliminary estimate of euro area third-quarter growth at 10:00 GMT, with expectations of 0.2% following 0.6%, before ECB Chief Economist Lane speaks at 16:10 GMT. The October euro area inflation reading is scheduled for 10:00 GMT on 4 November, following September's 3.8%.

For the Fed's next decision in December, attention turns to two US releases. Friday's third-quarter Employment Cost Index is due at 12:30 GMT, with a forecast of 0.8% against the previous 0.9%. On 4 November, the day after the US midterm elections, the Institute for Supply Management (ISM) services index is due at 15:00 GMT, following a reading of 54.9.

What do the charts indicate?

Despite recovering around an eighth of its decline from the August peak in the rebound from the session trough, EUR/USD remains roughly 150 pips below its 50-day Exponential Moving Average (EMA). A mid-September crossover took the 50-day below the 200-day, and the gap between them is now about 1.5 cents.

Daily chart for EUR/USD

Euro: frequently asked questions

Which countries use the Euro, and how widely is it traded?

Used by the 20 European Union countries that make up the Eurozone, the Euro ranks second only to the US Dollar among the world's most actively traded currencies. Its share of all foreign exchange transactions stood at 31% in 2022, with average daily turnover exceeding $2.2 trillion. With an estimated 30% share of all transactions, EUR/USD leads global currency-pair trading. Next come EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What role does the ECB play in determining the Euro's value?

Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the Eurozone's reserve bank, setting interest rates and conducting monetary policy. Maintaining price stability is its principal mandate, involving either curbing inflation or supporting growth. Interest rate increases and reductions are its main policy instrument. The Euro generally benefits when rates are relatively high or expected to rise; the reverse also holds. Monetary policy is decided by the ECB Governing Council, which meets eight times a year. The decision-makers comprise the heads of the Eurozone's national banks and six permanent members, among them ECB President Christine Lagarde.

Why do inflation figures matter for the Euro?

An important economic gauge for the Euro is Eurozone inflation, tracked through the Harmonised Index of Consumer Prices (HICP). A stronger-than-expected rise in inflation, particularly beyond the ECB's 2% target, requires the central bank to increase interest rates to regain control of price pressures. When interest rates in the region are relatively high compared with those elsewhere, the Euro typically benefits, as global investors find the region more attractive for placing their money.

Which economic indicators can move the Euro?

By signalling the economy's health, economic releases can move the Euro. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys are among the indicators that can steer the single currency. Economic strength supports the Euro by drawing in more foreign investment. It may also prompt the ECB to raise interest rates, directly strengthening the currency. Weak economic figures, by contrast, are likely to weigh on the Euro. Particular attention is paid to releases from Germany, France, Italy and Spain, the euro area's four largest economies, which together represent 75% of the Eurozone economy.

Why is the Trade Balance important for the Euro?

The Trade Balance is another key release for the Euro, showing the difference between a country's export earnings and its spending on imports over a specified period. Strong overseas demand for a country's exports creates additional demand for its currency as foreign buyers seek to purchase those goods, thereby lifting its value. A positive net Trade Balance therefore strengthens the currency, while a negative balance has the opposite effect.