Euro US Dollar (EUR/USD) Exchange Rate Quiet ahead of Latest US Inflation Figures
The Euro US Dollar (EUR/USD) exchange rate is wavering as the markets wait for the latest US inflation data. A softer-than-expected headline CPI reading could significantly pare rate hike bets from the Federal Reserve.
At time of writing, the EUR/USD exchange rate is around $1.1023, relatively unchanged from this morning’s opening levels.
US Dollar (USD) Muted amid Improving Market Sentiment
The US Dollar (USD) is fairly subdued this morning as investors moved to the sidelines. The latest inflation data could see significant movement. With an expected easing from 4% to 3.1%, the figure is approaching the Federal Reserve target of 2%.
Despite an expected cooling headline CPI figure, core inflation is set to ease much more modestly. Excluding volatile prices such as fuel and food, the figure is set to cool to 5.1% from 5.3%. USD investors could be buoyed by the sticky core inflation figure. This could allow further wiggle room for the Fed to continue tightening. Combined with a persistently tight labour market, further hike bets beyond the July meeting could remain up in the air.
But if the figure was to reveal a softer-than-expected headline CPI inflation, rate hike bets could be slashed. Economists at Credit Suisse are warning that if inflation slips further than expected, the Fed might be persuaded to pause hikes again. They added:
‘A number that can be termed ‘weak’ would allow the market to toy with the idea of pricing in no further hikes after this month, compared to the roughly 40% chance of a further 25 bps after this month’s hike now priced in.’
Euro (EUR) Supported by Hawkish ECB
Meanwhile, the Euro (EUR) is managing to hold onto modest gains amid a hawkish European Central Bank (ECB). Despite a lack of economic data, the Euro is remaining supported by a persistently hawkish tone from the central bank.
With a string of downbeat economic data, including particularly disappointing German figures, concerns are mounting over the health of the Eurozone economy. With many ECB policymakers insistent on a more data-driven approach to monetary policy, the recent downturn in economic data could see the central bank rethink their aggressive interest rate hike path.
Further providing a modicum of support for the Euro is an improving market mood. Against the safe-haven US Dollar, the riskier Euro is enjoying some much-needed demand.
Euro US Dollar Exchange Rate Forecast: ECB Speech to Boost the Euro?
Aside from the US inflation data, the Euro US Dollar exchange rate could see further movement with a speech from ECB Chief Economist Philip Lane. In light of a myriad of downbeat data pointing to a shaky economy, Lane could turn dovish, denting the Euro.
Elsewhere, tomorrow will also see the latest US producer price inflation reading. An expected climb in PPI could boost the ‘Greenback’ on elevated interest rate hikes. With inflationary pressures not quite peaking, the Fed could continue to raise rates to battle inflation.
