What Influences the Value of the Euro?

When you invest in the Forex market, it’s important to be aware of the key factors influencing the value of a currency, so that you can better anticipate price movements. Top Forex brokers offer many currency pairs that you can trade online, from the majors like EUR/USD and USD/JPY to minors such as GBP/CAD and exotics, including USD/SEK. The currency trading platform provides advanced trading tools, enabling traders to make smarter, more informed decisions.

Among the most traded currencies are the US Dollar (USD), Japanese Yen (JPY), and the Euro (EUR), which is currently used by 19 of the 28 members of the EU. The authority in charge of the monetary policy of the Eurozone is the European Central Bank, or ECB. The ECB’s primary goal is to maintain price stability within the countries comprising the EU’s monetary union, achieving a Consumer Price Index (CPI) of about 2%.

What are the most influential factors affecting the value of the Euro?

#1 European Central Bank

As the ECB effectively manages the Euro, its decisions are among the most important factors in terms of triggering volatility on currency pairs containing the EUR. The ECB determines the level of key interest rates, the implementation of quantitative easing programmes, and common financial rules, among other issues. The ECB is therefore responsible for the availability and the cost of the EUR in the global economy, which influences the value of the European currency.

#2 Inflation Rate

As the ECB’s goal is to maintain inflation of approximately 2%, it’s important to monitor all economic statistics related to prices, since they enable you to understand how close the ECB is to fulfilling its core objective and to anticipate its future actions. The CPI is the most important figure, but other reports such as the Purchasing Managers’ Index (PMI) also offer clues about future changes to the rate of inflation.

#3 Growth Figures

The overall economic output of Eurozone countries is a vital criterion for Forex traders, as they tend to invest in strong currencies linked to strong economies with stable political environments and large growth potential. Gross Domestic Product (GDP) is the most common measure of the net total of goods and services produced by a country or a group of countries.

Always remember to follow an economic calendar, so you’ll know when ECB members are due to speak, or when important statistics are about to be released. These releases can trigger higher volatility, influencing trading conditions such as spreads and margins.