Surprise Inflation Revision Halts Euro US Dollar (EUR/USD) Exchange Rate Slide
A surprise upward revision to June’s finalised Eurozone consumer price index data helped to stabilise the Euro to US Dollar (EUR/USD) exchange rate this morning.
While the headline inflation rate of 1.3% on the year still falls short of the European Central Bank’s (ECB) 2% target this nevertheless offered the Euro (EUR) a temporary boost.
With inflationary pressure proving stronger than forecast the case for an imminent ECB interest rate cut diminished, putting a temporary floor under EUR exchange rates.
Even so, confidence in the outlook of the Eurozone economy remains limited thanks to the underwhelming performance of the monthly construction output data.
As output continued to contract in May this added to existing concerns over the prospect of a Eurozone slowdown, keeping the single currency under a degree of pressure.
US Dollar (USD) Trends Higher Ahead of Housing Data
The mood towards the US Dollar (USD), meanwhile, could sour this afternoon if June’s housing starts and building permits figures prove underwhelming.
Forecasts point towards housing starts continuing to contract on the month, reflecting a wider slowdown within the construction sector.
A weaker showing here could diminish confidence in the economic outlook, even though construction only accounts for a limited fraction of the gross domestic product.
On the other hand, evidence of greater resilience within the housing market may encourage the US Dollar to extend its recent uptrend further.
Signs of greater confidence among US households even in the face of ongoing trade tensions would give USD exchange rates a fresh rallying point.
Rebound in Business Confidence Forecast to Boost US Dollar (USD) Demand
Confidence in the health of the US economy could improve on Thursday with the release of July’s Philadelphia Fed business outlook index.
Investors expect a solid improvement on the month, with the index forecast to bounce back from just 0.3 to 5.0.
This would suggest that sentiment among US businesses has improved at the start of the third quarter, shaking off trade anxiety in spite of the ongoing US-China dispute.
A stronger showing here could bolster confidence in the underlying health of the US manufacturing sector, increasing the odds of growth picking back up in the second half of 2019.
Any fresh signs of weakness, however, may see USD exchange rates come under renewed pressure.
Weak German Producer Prices Set to Weigh on EUR Exchange Rates
Ahead of the weekend the EUR/USD exchange rate may lose its footing once again if the latest German producer price index data shows weakness.
Another monthly contraction in the producer price index would point towards inflationary pressure easing in the near future, diminishing the impact of the stronger Eurozone inflation reading.
As long as inflation within the Eurozone’s powerhouse economy continues to show signs of stalling the case for greater ECB dovishness is likely to build.
Unless there are signs that price pressures are picking up the Euro may struggle to find any significant boost against its rivals this week.