Forex Today: Euro stabilizes as markets await comments from central bankers
Here is what you need to know on Thursday, October 8:
The Euro (EUR) holds steady against its rivals in the European session on Thursday after suffering large losses midweek. Later in the day, policymakers from the European Central Bank (ECB), the Bank of England (BoE) and the European Central Bank (ECB) will be delivering speeches. Additionally, the ECB will publish the minutes of its September policy meeting and the US economic calendar will feature weekly Initial Jobless Claims and Wholesale Inventories data for August.
Euro Price This week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the weakest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.61% | 0.29% | 0.21% | -0.02% | 0.00% | 0.40% | 0.57% | |
| EUR | -0.61% | -0.32% | -0.34% | -0.63% | -0.58% | -0.22% | -0.03% | |
| GBP | -0.29% | 0.32% | -0.02% | -0.31% | -0.27% | 0.14% | 0.29% | |
| JPY | -0.21% | 0.34% | 0.02% | -0.23% | -0.10% | 0.24% | 0.40% | |
| CAD | 0.02% | 0.63% | 0.31% | 0.23% | 0.11% | 0.36% | 0.61% | |
| AUD | -0.01% | 0.58% | 0.27% | 0.10% | -0.11% | 0.40% | 0.57% | |
| NZD | -0.40% | 0.22% | -0.14% | -0.24% | -0.36% | -0.40% | 0.17% | |
| CHF | -0.57% | 0.03% | -0.29% | -0.40% | -0.61% | -0.57% | -0.17% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
The widening French-German bond yield spreads, and growing doubts over the ECB's ability to tighten the policy forced the Euro to stay under bearish pressure on Wednesday. EUR/USD lost more than 0.5% and came within a touching distance of the 17-month low it touched near 1.1160 last week. EUR/JPY fell 0.6% on the day, while EUR/GBP closed the ninth consecutive trading day in negative territory. Early Thursday, EUR/USD trades marginally lower on the day, slightly below 1.1200.
During the American trading hours, the Fed released the minutes of the September meeting. The publication showed that most policymakers judged that another hike would probably be appropriate by the end of the year and that they increasingly focused on upside inflation risks, a resilient economy and the possibility that strong AI investment could add to demand pressures.
Euro finds limited support as Fed hike odds fade
Analysts at Commerzbank note that, from the perspective of the “expected interest rate differential between the Euro area and the US,” recent developments have actually been “somewhat supportive of the Euro.” They point out that “the probability of a Fed rate hike in October is now seen as lower than it was at the end of last week,” a shift that was “reinforced by the FOMC minutes released yesterday.” According to Commerzbank, while “many policymakers continued to favour another rate increase this year, the timing remains uncertain,” and importantly, a “single additional rate hike was mentioned rather than the multiple hikes that markets are still pricing in,” tempering the hawkish implications for USD and offering only modest relief for EUR.
In the meantime, crude Oil prices gain traction on Thursday, with the barrel of West Texas Intermediate (WTI) rising more than 2% on the day and trading slightly above $90.50. Markets also seem to have adopted a cautious stance as US stock index futures lose about 0.7% on the day.
The Pentagon told US Central Command (CENTCOM) several days ago to conclude preparations for resuming major combat operations in Iran, Axios reported on Wednesday. US President Donald Trump hasn't made any final decisions or included a specific date for launching strikes, but the US and Israeli sources said it could happen before the US midterm elections and possibly the Israeli elections a week earlier. A White House official stated that Trump has all options available at any time.
Japanese Prime Minister Takaichi Sanae said on Thursday that the country does not require reflationary policy now, adding that she aims to gain market trust by keeping communication highly transparent. After closing virtually unchanged on Wednesday, USD/JPY clings to small gains above 158.50 in the European morning.
Gold (XAU/USD) lost more than 1% on Wednesday, pressured by the broad based USD strength. XAU/USD corrects higher on Thursday and trades above $4,100.
GBP/USD struggles to gather recovery momentum and trades near 1.3200 following Wednesday's sharp decline.
AUD/USD trades in the red near 0.6950 after losing 0.3% on Wednesday. Earlier in the day, the data from Australia showed that Consumer Inflation Expectations climbed to 5.3% in October from 4.9% in September.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger 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.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.