Weak data in the Eurozone has caused extreme economic issues and has reached an all-time low. The composite PMI reached 47.1 in the third quarter of 2023.

Experts, speculators, and traders are closely analyzing the EUR/USD exchange rate movement. Regardless of the minor pick-ups in the euro’s value, the EUR/USD exchange rates are still low, around 1.08 (as of 14 May 2024).

 This article examines the major economic indicators that challenge the euro and EUR/USD predictions for 2024.

Eurozone and its Global Significance

The euro is the currency of 20 of the 27 countries in the eurozone and one of the major currencies in the forex market.

A single currency has eradicated exchange rate fluctuations within the euro area, which has resulted in easier investment and business opportunities in the euro area. Thanks to the euro’s scale, this promotes trade and investments from foreign countries globally.

Forex Traders speculate and analyze the EUR/USD exchange rate, which is highly influenced by the central bank’s monetary policies. This can result in interest rate fluctuations or inflation, directly influencing the forex market.

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Report/Indicators that affect the Euro

Let’s look at the major economic releases that directly affect the euro’s value to understand the nuances of this currency about forex.

European Central Bank releases

The ECB releases are among the forex market’s most highly anticipated news sources. Their interest rate-related financial actions and pricing have an immediate effect on trading.

HICP Data

the Harmonised Index of Consumer Prices (HICP) is an essential instrument for evaluating inflation in the EU. It also has a big influence on national and EU economic policy decisions.

The ZEW Survey

The ZEW Survey analyzes sentiment reports and economic predictions in Germany and the Eurozone. It assesses the current economic situation and future expectations. 300 expert analyzers across Europe release regular surveys, which are closely analyzed by traders and investors.

Subsequently, GDP is one of the most important economic indicators paired with ECB releases.

Overview of the recent weak data revolving around the Eurozone

The ECB and Fed’s monetary policies have led to a decline in the value of the euro, increasing its economic challenges. The ECB has adopted a data-driven approach to monetary policy decision-making.

The recent economic indicators of a weak euro are as follows.

Inflation

Inflation in the eurozone has decreased constantly in all categories, from food price inflation to goods price inflation, which is 2.6% and 4.0%, respectively, as per data from February 2024 (according to the ECB). The eurozone faced the highest inflation rate of 10.6% during October 2022 due to the Russia-Ukraine war, leading to high energy prices.

According to March 2024 predictions from the ECB, Inflation is expected to moderate further.

Annual average headline inflation is predicted/expected to decrease from 2.3% to 2.0% and 1.9% in 2024, 2025, and 2026 respectively.

Economic Activity

Economic activity in the eurozone has been weak, and the euro economic challenges continue to prevail. Consumers have reduced spending, and investors have stepped back. The financial performance hasn’t been good. There has been 0.3% GDP quarterly growth.

The ECB predicts two more cuts later this year. The unemployment rate has also been at an all-time low, but it is expected to increase in 2024 in hopes of a rise in real disposable income.

The annual GDP average is expected to be 0.6% to 1.4% in 2024 and 2025, respectively.

Financial Conditions

Market Interest rates increased in January 2024. Subsequently, lending rates increased by 3.9% for mortgages and 5.2% for business loans.

The interest rate differences between the Federal Reserve and the European Central Bank, which are 4.0% and 5.25%, respectively, are expected to encourage carry trading between the USD and EUR.

Major reasons for the Euro Economic Challenges

The most undeniable reason for the euro’s weakening is monetary policy disparities. Interest rate decisions and the differences between the ECB and the Federal Reserve rates have contributed to this. The euro’s relative weakening relative to other major currencies in the forex market has been caused by low interest rates from the ECB.

The reduced exports in the eurozone have also led to decreased economic activity in the zone.

Weak economic data is a major reason for investors’ market sentiments to decline in currency trading. This leads to investors selling the Euro, further depressing its value.

Some experts from the EU have stated that the Russia-Ukraine War was a significant cause of the Euro’s depreciation in 2022. The reason is Russia’s imports of fossil fuels to fulfill energy requirements. Moreover, the U.S. is relatively much stronger in fossil fuel production. Furthermore, investors find the USD a haven compared to the EUR, leading to a decline in the currency’s value.

Conclusion

The ECB has decided to keep the interest rates unchanged as of March 2024. The government council is making sure to return inflation to 2%. The council is set to adopt a data-driven approach to determine the interest rate restriction levels and duration of the restriction.

FAQs

What has caused the euro to weaken?

One major reason for the weak euro has been inflation differentials between the euro and the U.S. Dollar.

What affects EUR currency?

The ECB Policy decisions and interest rates are the major driving factors.

DISCLAIMER: This information is not considered investment advice or an investment recommendation, but is instead a marketing communication