Must Know - 3 Main Factors affect EUR/USD market price Table of Contents
What are the most popular currencies worldwide?
One of the more popular instruments Forex traders like to trade is the Euro against the US dollar, or as it’s otherwise referred to; the EUR/USD.
One reason is because both the Euro and the US dollar are two of the most popular and most often-used currencies worldwide.
But what actually affects these currency prices?
That’s something that many Forex traders are trying to figure out on a daily basis.
That’s because they consider the factors that spark price movements to be the key to successful trades.
In the following piece, we will explore the possible factors that could affect the EUR/USD.
3 main factors which affect EUR/USD price
It should be noted that there are very few events or instances that affect both currencies in opposite directions.
There are only a few instances whereby an economic event would drive the US dollar up and the Euro down or drive the Euro up and the US dollar down simultaneously.
Usually, economic events will cause one currency to lose or gain in value.
There are however, some instances whereby both currencies are affected in the same manner.
1. Central bank decisions
The United States Federal Reserve, or the Fed, is the central bank of the United States.
Once every six weeks or so, the Fed holds a meeting called the Federal Open Market Committee (FOMC).
In this meeting, the Fed officials decide if they want to raise or lower rates – or to leave them alone.
If they raise rates, the USD will often rise.
If they lower them, the USD will often drop.
The same affect can take place when the European Central Bank makes decisions.
If it chooses to raise rates, the Euro will often rise against the USD and vice versa.
2. Political Events
After Italian Prime Minister Matteo Renzi said he would resign following a crushing defeat on constitutional reform in December 2016, the Euro has fell to a 20-month low against the US dollar.
This is a classic example of a major political event affecting one of the two currencies.
A major political event can potentially create a sense of instability in the European economy.
When that happens, traders can lose confidence in the Euro and its value could potentially decrease.
3. Economic Data
Central banks usually make their decisions to raise or lower rates based on economic data.
This means that if the European Union reports excellent GDP results, it’s possible that the markets will react bullishly towards the Euro.
On the other hand, if the US government reports an increase in unemployment, the Dollar could react bearishly.
Although most of the factors listed above affect one of the two currencies at a given point in time exclusively, it can be enough to track either the USD or the EUR, it could offer helpful knowledge to traders who want to invest in this popular currency pair.
Just remember to take these indicators with a grain of salt.
There are many other factors that can impact the price of the EUR/USD and when it comes to currency fluctuations, you can bet your bottom dollar that nothing is guaranteed.