Euro US Dollar (EUR/USD) Exchange Rate Soars as US Inflation Falls

Euro US Dollar (EUR/USD) Exchange Rate Rockets as US Inflation Falls

(Updated 14:00, 12/01/23) The Euro US Dollar (EUR/USD) exchange rate is soaring this afternoon, following the release of the US’ latest CPI data.

Both headline and core inflation fell in line with forecasts this afternoon, prompting investors to pare back rate hike bets. The Federal Reserve may now begin to take a more moderate path in tightening, with the US economy beginning to slow as inflation shows signs of peaking.

As such, EUR/USD is now trading at around US$1.0829, an increase of roughly 0.6% from the morning’s rates.

Original article continues below:

Euro US Dollar (EUR/USD) Exchange Rate Narrows as Investors Await US CPI Data

The Euro US Dollar (EUR/USD) exchange rate is rangebound this morning, as investors await the latest CPI data releases for the US.

At the time of writing, EUR/USD is trading at around US$1.0768, showing little change from today’s opening rates.

Euro (EUR) Underpinned by Hawkish ECB

The Euro (EUR) is seeing mixed trade this morning, as thin trading conditions leave EUR at the behest of market sentiment.

Yesterday saw European Central Bank (ECB) policymaker Robert Holzmann strike a hawkish attitude. He stated that:

‘Policy interest rates will have to rise significantly further to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target.’

Currently, the ECB remains hawkish in their attitude towards to inflation, and the Eurozone economy appears healthy. As such, investors are confident in the Euro, and remain betting on further rate hikes from the ECB.

Potentially weighing on the Euro this morning is fears of further escalations in the Ukraine-Russia conflict. Ukrainian President Volodymyr Zelenskiy has warned Ukrainian troops to be ready in areas near Belarus, with a Russian assault expected.

US Dollar (USD) Steadies Ahead of Inflation Data

The US Dollar (USD) is steady this morning, as investors await December’s inflation figures. The Federal Reserve has indicated this data could shape the course of future rate hikes.

Headline inflation and core inflation are both expected to fall, which could lead to investors paring back rate hike bets. If this occurs, the ‘Greenback’ may weaken this afternoon.

Furthermore, analysts anticipate that a shock uptick in inflation may do little to change the Fed’s expected slowdown.

Chris Turner, Global Head of Markets at ING London, explained this further. He stated:

‘There’s a coherent message of an easing of price pressures in the United States, so even if you get one upside surprise to CPI that wouldn’t completely undermine the trend.’

Elsewhere, a muted market mood is serving to underpin the safe-haven ‘Greenback’ this morning. Trading conditions ahead of the inflation release are thin, meaning the US Dollar is making neither gains nor losses.

Euro US Dollar (EUR/USD) Exchange Rate Forecast: German GDP to Dent EUR?

Looking ahead for the Euro (EUR), tomorrow brings the release of Germany’s 2022 GDP growth data. A fall from 2.6% to 1.8% is forecast, which may dent EUR by showing slowdown in the bloc’s largest economy.

November’s industrial production data for the Eurozone is also due tomorrow. A jump from -2% to 0.5% could bring a boost to the Euro, by giving hope of a milder recession.

For the US Dollar (USD), beyond this afternoon’s inflation data, tomorrow brings the latest University of Michigan consumer sentiment index. A modest uptick is forecast from 59.7 to 60.5, which could boost USD by pointing to optimism among the consumption-based economy.

Elsewhere, risk appetite could drive the pairing. As both currencies are safer choices for investors, a shift to risk aversion could narrow GBP/EUR.

Furthermore, the pairing’s negative correlation could play a part. A weakened ‘Greenback’ after today’s inflation data could boost the Euro.

John Mulcahey

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