Euro US Dollar (EUR/USD) Exchange Rate Firms Despite Euro Area Inflation Declining to 8.5%
The Euro US Dollar (EUR/USD) exchange rate is climbing this morning in the wake of Eurozone inflation missing expectations and softening further to 8.5%.
At time of writing, the EUR/USD exchange rate is around $1.0892, a 0.30% climb from this morning’s opening levels.
Euro (EUR) Supported by Declining Inflation
The Euro (EUR) exchange rate is finding moderate success this morning, despite inflation in the Euro area declining faster than expected. Against predictions of a modest fall to 9% from 9.2%, annualised headline CPI dropped to an eight-month low of 8.5%.
A slowing of energy prices in January was the biggest driver of declining inflation, but prices increased for food and alcohol. However, core inflation remained at 5.2%, highlighting the elevated price pressures remaining.
Elsewhere, the unemployment rate climbed modestly, stable compared to November’s figures but above forecasts of 6.5%. Despite the slight increase of 23,000, the labour market remains fairly resilient, potentially bolstering further rate hike bets from the European Central Bank (ECB)
US Dollar (USD) Subdued ahead of Interest Rate Decision
Meanwhile, the US Dollar is remaining fairly quiet ahead of a flurry of crucial US data releases today. Before the headline event of the Federal Reserve interest rate decision this evening, several key macroeconomic could sway investors beforehand.
With many USD investors moving to the sidelines ahead of the crucial decision, the US Dollar was left open to risk sentiment. With a marked improvement in market mood as of late, the ‘Greenback’ is struggling to find strong demand.
An expected decline in the ISM manufacturing PMI could weigh further on the ‘Greenback’. A third consecutive month of declining activity could highlight the flagging sector, which would also point to the lowest reading since February 2016 (excluding the Covid pandemic).
Euro US Dollar Exchange Rate Forecast: Fed Rate Decision to Sink the Euro?
Looking ahead, the Euro US Dollar exchange rate could see further movement with the headline release of the day in the Fed interest rate decision. Despite a 25bps rate hike all but baked in, investors will be keenly awaiting the accompanying conference. A speech from Fed Chair Jerome Powell is expected to be very hawkish in tone, potentially buoying the US Dollar.
Meanwhile, the negative correlation Euro shares with the ‘Greenback’ could see further daylight between the pair if the US Dollar strengthens.
