Euro US Dollar (EUR/USD) Exchange Rate Loses Traction as Eurozone Inflation Eases
The Euro to US Dollar (EUR/USD) exchange rate lost much of its traction on Friday morning after the Eurozone consumer price index saw an unexpected dip in August.
Investors were discouraged to find that the headline inflation rate had eased from 2.1% to 2.0%, accompanied by a similar decline in the core inflation measure.
This suggests that inflationary pressure within the currency union is weaker than thought, limiting the prospect of any increase in European Central Bank (ECB) monetary tightening.
Coupled with a fresh monthly contraction in German retail sales this has left the Euro (EUR) on a generally weaker footing ahead of the weekend, denting confidence in the Eurozone’s economic outlook.
US Inflation Uptick Sees Limited Impact on Euro US Dollar (EUR/USD) Exchange Rate
Thursday’s uptick in the US personal consumption expenditure core measure failed to put much pressure on the Euro to US Dollar (EUR/USD) exchange rate.
While inflationary pressure within the US economy is continuing to build this is unlikely to significantly alter the progress of the Federal Reserve’s planned interest rate hikes, limiting the positive impact on the US Dollar (USD).
As Fed Chair Jerome Powell took a more cautious tone in recent comments on the policy outlook, anything short of a major blow-up in inflation will struggle to shift the odds of further monetary tightening.
The Trump administration’s latest threat to pull the US out of the World Trade Organisation (WTO) also weighed heavily on USD exchange rates on Friday morning, exacerbating market worries over trade.
EUR/USD Exchange Rate Vulnerable to Italian Political Drama
Political tensions over Italy could drag on the Euro to US Dollar (EUR/USD) exchange rate in the days ahead, given that the government’s spending plans are at odds with EU budget rules.
Any fresh outbreak of political jitters could weigh heavily on demand for the Euro as the possibility of another Eurozone crisis casts a shadow over the currency union.
August’s finalised raft of Eurozone manufacturing and services PMIs may not offer any particular boost to EUR exchange rates, meanwhile.
As no change is forecast from the provisional figures the impact of the data is likely to prove limited, barring any major revisions.
German trade data will come into focus later in the week, however, with investors anticipating a narrowing of the trade surplus in July.
US Dollar (USD) Exchange Rates Jittery as Data Impacts Fed Rate Hike Odds
The ISM manufacturing and non-manufacturing indexes for August may prompt a fresh slump for the Euro to US Dollar (EUR/USD) exchange rate, meanwhile.
Further signs of strength within the world’s largest economy would give the US Dollar a renewed boost against its rivals.
With the course of future Federal Reserve monetary policy pinned on the relative strength of domestic data a positive showing here is likely to drive USD exchange rates higher.
Even so, ahead of the latest US non-farm payrolls report and other labour market data investors may take a more cautious view towards the US Dollar.
Any evidence of weakness within the US economy could help the Euro to US Dollar (EUR/USD) exchange rate to return to a bullish run.