The Euro acts as a sort of anti-dollar in the currency markets. There are many factors that affect its ability to compete against the U.S. dollar. Listed below are some news events that cause the Euro to move against other currencies.
The primary mover of the Euro is interest rate changes. By the time the European Central Bank, or ECB, meets to decide the interest rates for the Euro, their decision is usually not a surprise. The ECB press conferences have an open question period where the members of the press ask questions of the ECB President. This period can create a lot of volatility in the price of the Euro as the press and the wider financial community analyze the ECB President’s answers and reactions for signs of how he or she sees the European economy going forward. If they sense that high inflation is a worry, this could spur the central bank to raise interest rates later. A raise in interest rates would lower the money supply of the Euro, thereby increasing the value of it, and creating a market bullish for the Euro.
- Consumer Price Indices – these reports calculate the price of a basket of goods an average household might purchase. The Eurozone Core CPI excludes food, energy, alcohol and tobacco. The German and French CPI reports, due to the size of the German and French economies, are also important. The releases of the CPI do have an effect on the Euro, but this is lessened by the estimates or preliminary versions of the reports that are released about two weeks before. This allows the market more time to absorb the news and lessens the volatility of having the news hit all at once on a monthly basis.
- GDP – the Eurozone GDP measures the health of the European economy and is released on a quarterly basis. This measures the total value of all the goods and services produced in the Eurozone during the recorded period.
- Trade Balance and Current Account – The Eurozone Trade balance, and the German and French Current Accounts respectively, reflect the Eurozone’s balance of payments. The Trade Balance report shows the balance of imports into and exports out of the Eurozone during the period measured. The French and German Current Account reports show the balance of money entering each respective country versus the amount of money exiting. A positive value here means that more capital is flowing in than capital flowing out.
- Consumer Confidence – the Center for European Economic Research releases the ZEW Survey, which is a sampling of financial experts asking them how they see the economy. Options are limited to “positive,” “no change,” or “negative.” Most of the time the market has already figured out what the survey will generally say, but if there is a surprise result, it can move the Euro up or down.
The results of elections can affect the Euro when the public has a general idea about what type of monetary policy that will be pursued. It is not as direct an effect as the results of the U.S. election might be, but France and Germany, being the two largest components of the European economy, can generate a significant effect on the price of the Euro when they choose new leadership. This is because the new leadership influences their respective country’s economy, which in turn affects the Euro.
The central banks that make decisions regarding the world’s currencies are composed of powerful people. Their decisions literally affect the daily lives of billions of people. Millions of eyes and ears home in on their every word and their statements are repeated on news broadcasts around the world. If a central bank head such as Mario Draghi of the ECB or Jerome Powell of the U.S. Federal Reserve even so much as suggest an interest rate cut or increase, it can send markets into a skyrocket or a tailspin. Always be aware of any speeches by central bank leaders related to any currencies that you are actively trading. Sometimes these are known in advance and sometimes they are not. This type of effect is not just limited to Central Bank leaders, as any important member of a country’s government can make a statement about the economy or monetary policy of a country and have an immediate effect on the markets.
All currencies float on the market up and down depending on pretty much the same factors. The Euro, however, is unique in that it serves an economy composed of many different countries, each with their own separate economies, laws, and political and economic conditions. News, bad or good, from any of these various countries can affect the Euro positively or negatively. With a combined GDP of approximately $14 trillion USD, the Eurozone is a vast economic bulwark that commands respect on the world economic stage.