Euro US Dollar (EUR/USD) Exchange Rate Rangebound after Below-Parity Fall
The Euro US Dollar (EUR/USD) exchange rate is trading within a narrow range today. After US inflation figures printed above-forecasts, the currency pair briefly fell below parity for the first time in almost two decades. The pair has since ticked higher.
At time of writing the EUR/USD exchange rate is at around $1.0034, virtually unchanged from this morning’s opening figures.
Euro (EUR) Drops amid Renewed Eurozone Recession Fears
The Euro (EUR) is weakening against its rivals today. The single currency hit parity against the US Dollar (USD) earlier in the day following hotter than expected inflation data.
Perceived inaction by the European Central Bank (ECB) over the exchange rate’s slide may have contributed to the single currency’s fall today. Economists have pointed out that the sharp drop in the Euro’s fortunes illustrates how far behind the ECB is.
The Eurozone’s economic outlook has worsened to the point that markets are now pricing out at least one rate hike.
The Euro’s performance could also be harmed by fears of an energy supply crisis across the Eurozone. Germany, the bloc’s largest member, is particularly concerned that Russia could keep gas supplies from the Nord Stream 1 pipeline shut-off. Analysts have predicted that such a scenario could cause a 12.7% loss to the country’s economy.
US Dollar (USD) Climbs Following Above-Forecast Inflation Figures
The US Dollar (USD) is trending higher against many of its competitors today. The rise comes after hotter than expected US inflation data. Figures indicated that the rate of inflation rose to 9.1% in June, the country’s highest rate since 1981.
Consumer prices across the country have continued to climb in recent months. Global supply chain issues and the war in Ukraine were cited as primary factors.
Markets now almost universally expect the Federal Reserve to raise interest rates at their next meeting, possibly by 0.75%.
Fed rhetoric has remained hawkish in recent days. Most recently on Tuesday, policymaker Thomas Barkin signalled that he would be open to a 0.5% or 0.75% rate hike at the Fed’s July meeting.
Speaking on the inflation figures and Fed forward policy, James Knightley of ING said:
‘With supply conditions showing little sign of improvement the onus is the on the Fed to hit the brakes via higher rates to allow demand to better match supply conditions. The recession threat is rising.’
EUR/USD Exchange Rate Forecast: Will US PPI Figures Push USD Even Higher?
Looking ahead to the rest of the week for the Euro, Friday’s balance of trade figures for the Eurozone could prompt an uptick in the single currency. The trading bloc’s trade deficit is forecast to narrow slightly.
The Euro could continue to see further pressure from Eurozone recession fears, however. Investors will be looking for any signals from Russia as to whether they will reinstate Germany’s gas supplies.
For the US Dollar, June’s PPI figures on Thursday could push the currency higher if they remain unchanged as forecast. Investors may see them as a sign of further aggressive rate hikes from the Fed.
Also on Thursday, initial jobless claims figures are also expected to remain unchanged. The data could see the currency tick higher amid signs of a tight labour market. Friday’s predicted rise to June’s retail sales could also bolster USD in the short-term. The expected strong figures could dampen any bets on action from the Fed however amid signs of a strong economy.