Euro Fundamentals (EUR)

Euro fundamentals start with the dollar, because EUR/USD is the market’s main way to bet for or against it. The euro is on one side of 28.9 percent of all currency trades, second only to the dollar (BIS Triennial Survey, April 2025). So when the euro moves, your first job is to check that it is the euro moving at all.

Is it the euro or the dollar?

Most traders who want to sell the dollar do it by buying EUR/USD. That means the euro can rally on weak US data while nothing has happened in Europe. A quick test: look at EUR/GBP or EUR/JPY. If the euro is flat there, the move in EUR/USD belongs to the dollar.

The dollar side is in US Dollar Fundamentals (USD), and why a pair always moves on both sides in Currency Pairs and Relative Pricing. The euro has its own weight too: 20.6 percent of the world’s foreign exchange reserves were in euros in the second quarter of 2026, behind only the dollar (IMF COFER).

The ECB has one job

The European Central Bank has a single primary objective, price stability, written into Article 127 of the EU Treaty. It also supports the EU’s wider economic policies, but only “without prejudice to the objective of price stability” (ECB). The Fed has two goals, jobs and prices. That is one reason euro traders watch inflation first and the labour market second.

The ECB aims for 2 percent inflation over the medium term, measured by the HICP, and calls deviations on either side “equally undesirable” (ECB strategy). That symmetry matters more than it sounds. Inflation stuck below 2 percent is as much a reason to act as inflation above it.

Its Governing Council, the six members of the Executive Board plus the governor of every euro area national central bank, sets policy every six weeks (ECB). With that many people at the table you hear a lot of voices between meetings, so one governor’s interview is rarely the whole story. The decisions are listed on ECB Interest Rate Decision, the next date on When is the next ECB meeting?

What moves EUR/USD is the gap

The euro trades on the ECB’s expected path against the Fed’s. It can rise after an ECB meeting that leaves rates unchanged, if the message suggests rates stay higher for longer than the market thought. You can follow the pair on EUR/USD fundamentals, the two policy rates side by side on Interest rate differential by currency pair and the same gap net of inflation on Real interest rates by currency.

That gap has swung a long way. The ECB’s deposit rate went below zero on 11 June 2014, reached −0.50 percent in September 2019 and only came back to zero on 27 July 2022 (ECB key interest rates). For eight years the ECB charged banks for the euros they parked with it, and the euro was at times borrowed to fund carry trades.

How closely has the euro followed that gap? Take each month from February 1999 to September 2026 and compare the change in EUR/USD at the month-end ECB reference rate with the change in the gap between the US two-year yield (Federal Reserve) and the German one (Bundesbank). In 65 percent of the months in which both moved, they moved the textbook way: a wider US lead with a lower EUR/USD, or a narrower one with a higher EUR/USD.

That average hides two different worlds. From 2008 to 2014 the share was 72 percent, and from 2022 to September 2026 it was 77 percent. From 1999 to 2007, and again from 2015 to 2021, the years the deposit rate spent wholly below zero, it was 57 to 58 percent, not much better than a coin toss. The correlation of the monthly changes says the same: about −0.6 from 2008 to 2014 and since 2022, where −1 would mean they always moved opposite ways in proportion, and only −0.1 to −0.2 in the other two periods. So the gap has tracked the euro closely in some years and loosely in others. These figures describe the past, and the link can loosen or tighten again.

2022, when the gap and energy hit together

The Fed started raising rates in March 2022, and after its September move its target range was 3.00 to 3.25 percent (Federal Reserve). The ECB’s deposit rate had only just reached 0.75 percent (ECB).

At the same time energy prices surged, and Europe buys most of its energy abroad: net imports covered 62.5 percent of the EU’s energy needs that year (Eurostat). A higher energy bill sends euros out of the area, which weighs on the currency whatever the ECB does.

EUR/USD fell below parity on most days from late August to early November, with a low of 0.9565 on 28 September (ECB reference rates). If you only watched the rate gap that year, you saw half of the story.

Fragmentation is the euro’s own risk

One currency, many governments, each issuing its own debt. Under stress, the borrowing costs of weaker member states can rise much faster than Germany’s, and the market starts to price the chance that the euro does not hold together. No other major currency carries that risk in this form.

In 2012 it got serious enough that ECB President Mario Draghi said in London on 26 July: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro” (ECB speech). On 21 July 2022 the ECB added the Transmission Protection Instrument, bond purchases “not restricted ex ante” against “unwarranted, disorderly market dynamics” (ECB press release).

That backstop has conditions: a country must, among other things, comply with the EU fiscal rules and have sustainable public debt. So traders still watch the spread between, say, Italian and German ten-year yields. When it widens fast, the ECB may hesitate to tighten, and that can weigh on the euro.

The data that matters

• Euro Area Inflation Rate (HICP): the measure the ECB’s target is set on, and with a single mandate the release that matters most.
• Euro Area Manufacturing PMI: a monthly survey of purchasing managers, out long before the quarter’s GDP, so it often shows a turn in growth first.
• Euro Area GDP Growth Rate: whether the area is keeping up with the US. The euro tends to struggle when it lags.

For each of them, the forecast is the line the euro trades against on the day.

Crosses and positioning

Away from the dollar, each euro cross is the ECB against another central bank: EUR/GBP against the Bank of England (British Pound Fundamentals (GBP)), EUR/JPY against the Bank of Japan. EUR/JPY also swings with risk appetite, because the yen tends to rise when markets turn defensive (Japanese Yen Fundamentals (JPY)). EUR/CHF is how most traders read the franc’s strength; see Swiss Franc Fundamentals (CHF).

Leveraged funds’ euro futures, from the CFTC’s Traders in Financial Futures report (CFTC), are on the Euro COT report. Since the euro is the default way to trade the dollar, a big long euro position is often a big short dollar position under another name.