Euro US Dollar (EUR/USD) Fluctuates ahead of US Inflation
The Euro US Dollar (EUR/USD) exchange rate is moving without a clear trajectory this morning ahead of the hotly anticipated US inflation data.
At the time of writing the EUR/USD exchange rate is trading at $1.0771, virtually unchanged from this morning’s opening rate.
Euro (EUR) Buoyed by Economic Optimism
The Euro (EUR) is mixed this morning following Germany’s latest ZEW economic sentiment index.
The index printed at 19.9, surpassing forecasts of 17.5 in February. The report showed that the outlook of 300 German economists has reached its highest point for a year and risen for a seventh consecutive month.
While the highly impactful indicator pointed to improving conditions within Germany’s economy, the report also showed that a large contributor to such economic optimism was based on the increasing likelihood of European Central Bank (ECB) interest rate cuts.
ZEW President Achim Wambach said:
‘Economic expectations for Germany have improved again. Accordingly, more than two-thirds of the respondents expect the ECB to make interest rate cuts over the next six months in light of falling inflation rates.’
US Dollar (USD) Muted ahead of Inflation Data
The US Dollar (USD) is rangebound this morning ahead of this afternoon’s highly impactful inflation data.
With US data in short supply until the latter part of today’s session, USD investors stand hesitant to place any aggressive bets on the ‘Greenback’, in the absence of supporting figures.
Despite a seemingly hawkish consensus from a majority of Federal Reserve policymakers in recent days, a forecast cooling this afternoon of both headline and core US inflation in January will likely see markets resizing their interest rate cut expectations, as inflation continues to move on a downward trajectory towards the Fed’s 2% target level.
In the meantime, the ‘Greenback’ faces additional pressure today in the wake of Fed policymaker Raphael Bostic’s dovish pivot last night. Bostic observed that recent gradual falls in US inflation pave the way for the central bank to begin its loosening cycle.
The Fed dove said:
‘If that were to continue, I’d be open to pulling it forward more. The things that we’re seeing today are not head fakes, but rather, are really enduring and robust and true to where the economy is.’
Euro US Dollar Exchange Rate Forecast: US Inflation to Sink the ‘Greenback’?
Looking ahead, the release of the latest US inflation data this afternoon will likely be the core catalyst of USD movement today. With both headline and core inflation forecast to have cooled in January’s year-on-year report, renewed speculations that the Fed could start its unwinding cycle in the spring months may weigh heavily on the US Dollar.
Looking to the Eurozone, a secondary GDP estimate is due out tomorrow. Growth is forecast to flatline in the fourth quarter, which could undermine the common currency amid additional evidence of economic sluggishness.
Also due tomorrow in the Euro area, a speech from ECB Vice President Luis de Guindos could spark additional EUR volatility. Should de Guindos strike dovish amid rising ECB rate cut bets, the Euro may falter.
