The European Central Bank’s (ECB) latest Consumer Expectations Survey, released on Tuesday, showed that consumers’ median inflation expectations for the next 12 months eased to 2.7% in September, down from 2.8% in August.
Longer-term expectations remained stable, with three-year and five-year inflation forecasts unchanged at 2.5% and 2.2%, respectively. The survey also indicated that income growth expectations were steady, while spending expectations edged slightly higher for the year ahead.
Market Reaction
The EUR/USD pair showed little immediate reaction to the data, last trading marginally higher on the day at around 1.1650.
Euro FAQs
What is the Euro?
The Euro (EUR) is the common currency used by the 20 countries of the Eurozone. It is the second most traded currency globally after the US Dollar, accounting for about 31% of global FX transactions in 2022. The EUR/USD pair is the world’s most actively traded, representing roughly 30% of all forex trades, followed by EUR/JPY (4%), EUR/GBP (3%), and EUR/AUD (2%).
What is the ECB and how does it influence the Euro?
The European Central Bank (ECB), headquartered in Frankfurt, Germany, is responsible for monetary policy across the Eurozone. Its main goal is to maintain price stability—controlling inflation while supporting economic growth. The ECB primarily achieves this by adjusting interest rates.
Higher rates—or expectations of rate hikes—tend to strengthen the Euro, while lower rates generally weaken it. The ECB’s Governing Council meets eight times a year to set policy, with decisions made by national central bank heads and six executive board members, including ECB President Christine Lagarde.
How does inflation data affect the Euro?
Eurozone inflation, measured by the Harmonized Index of Consumer Prices (HICP), is a key factor for the ECB. If inflation rises above the 2% target, the ECB may raise rates to cool the economy, typically boosting the Euro. Conversely, weaker inflation may lead to lower rates and a softer Euro.
How does economic data influence the Euro?
Economic indicators such as GDP, PMIs, employment, and consumer sentiment provide insight into the Eurozone’s health. Strong data generally supports the Euro by increasing expectations of tighter policy, while weak data tends to weigh on it. Data from Germany, France, Italy, and Spain—which make up about 75% of the Eurozone economy—are particularly influential.
How does the trade balance affect the Euro?
The Trade Balance measures the gap between exports and imports. A positive balance (exports exceeding imports) usually strengthens the Euro as foreign buyers demand the currency to pay for goods, whereas a negative balance can put downward pressure on it.
