Euro US dollar (EUR/USD) fluctuates as Eurozone inflation cools
The euro US dollar (EUR/USD) exchange rate is rangebound this morning despite news of rapidly easing price pressures from within the Euro bloc.
At the time of writing the EUR/USD exchange rate is trading at $1.1082, virtually unchanged from this morning’s opening rate.
Euro (EUR) wobbles amid decelerating price pressures
The euro (EUR) is struggling to attract investor support this morning following the latest inflation data from the Eurozone.
The bloc’s consumer price index (CPI) softened to 2.2% in July as forecast, easing from a previous reading of 2.6%, with analysts citing declining energy prices as the key driver of deceleration last month.
Coming hot on the heels of yesterday’s cooler-than-expected German CPI, news of rapidly easing price pressures across the wider Eurozone serve to reinforce speculation of a September interest rate cut by the European Central Bank (ECB).
Sam Miley, Managing Economist and Forecasting Lead at the Centre for Business and Economics Research, commented:
‘This marked the slowest rate of price growth for more than three years and makes a rate cut at the European Central Bank’s upcoming September policy meeting more likely.’
However, with the bloc’s unemployment rate dipping to 6.4% in July, below market forecasts of 6.5%, signs of a continually tight labour market across the Euro area serve to offset EUR’s potential losses.
US Dollar (USD) subdued ahead of inflation release
The US dollar (USD) is trading without a clear direction this morning ahead of the latest US inflation data.
While the ‘greenback’ clings onto recent gains in the wake of a better-than-forecast GDP release yesterday, investors appear largely reluctant to place any aggressive bets on the US dollar prior to the latest American core PCE price index, which is scheduled for release this afternoon.
Federal Reserve interest rate cut bets have surged in recent weeks, as markets to price in an increasingly aggressive policy-easing cycle amid signs of decelerating price pressures and a dovish Fed consensus. In turn, confirmation of further inflationary cooling could see USD tumble this afternoon.
However, with the index set to rise to 2.7% in July, signs of stubborn US price pressures could fuel a modest pull back in Fed policy expectations for the months ahead.
Yesterday, Fed Raphael Bostic struck a cautious tone speaking at an event in Georgia, suggesting that any hasty monetary unwinding could negatively impact the trajectory of the US economy.
Bostic stated:
‘I don’t want us to be in a situation where we cut, and then we have to raise rates again: that would be a very bad outcome. If I’m going to err on one side, it’s going to be waiting longer just to make sure that we don’t have that up and down.’
Though deviating slightly from the Fed’s increasingly dovish outlook, could sticky US inflation serve to lift the ‘greenback’ later today?
Euro US dollar exchange rate forecast: US inflation to lift the ‘greenback’?
Looking ahead, the key focus for investors this afternoon will be the latest US inflation release. As the Fed’s preferred gauge of inflation, any signs of stubborn US price pressures may enable USD to climb higher, as markets pare back their Fed rate cut expectations.
Looking to the Eurozone, ongoing market response to the morning’s releases may drive EUR exchange rates.
