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EUR USD Exchange Rate Fluctuates as Eurozone Inflation Falls, US Jobs Data Disappoints

EUR USD Exchange Rate Slides with Eurozone Inflation Below ECB Target Levels

The Euro US Dollar (EUR USD) exchange rate fluctuated on Friday as markets responded to a poor inflation release for the Eurozone and the challenges that the European Central Bank (ECB) will likely face moving into 2018 as a result.

Average consumer prices in the bloc increased by 1.4% year-on-year in December, down from the previous period’s 1.5% but consistent with the market forecast.

The main drivers for this fall were volatile prices in energy food, alcohol and tobacco, though inflation within the services sector provided some buoyancy.

The Eurozone’s core reading similarly disappointed by remaining stagnant at 0.9% rather than ticking higher to 1.0%.

Whilst markets were not expecting monetary policy tightening measures until 2019 at the earliest, the news that inflation continues to move away from target levels could delay a rate hike even further.

The EUR USD exchange rate quickly pared recent gains as a result, though this proved short-lived on the release of a run of US ecostats in the afternoon.

US Dollar (USD) Exchange Rates Stumble on Poor US Domestic Data

The US Dollar (USD) quickly pared its gains into Friday afternoon, falling on a run of mixed domestic data releases.

Data from the US Commerce Department revealed that the US trade deficit widened to USD -50.5 billion in November, up from the previous period’s USD -48.9 billion and the forecast of USD -48.0 billion.

This marked the largest deficit in nearly six years, with imports reaching a record high on rising demand for crude oil, cell phones and semiconductors.

In other news, the US labour Department announced that 148,000 jobs had been added in December, below the market forecast of 190,000.

This promptly knocked the EUR USD exchange rate back into the Euro’s favour.

On a positive note, however, the unemployment rate remained at 17-year lows of 4.1%, whilst year-on-year average hourly earnings figures for December inched up from 2.4% previous to 2.5%, consistent with forecasts.

EUR USD Exchange Rate Forecast: Further Volatility Likely on US ISM Composite Reading

The Euro US Dollar exchange rate could become increasingly volatile before the trading week ends with more pertinent US data due.

The incoming releases include the US ISM non-manufacturing/services composite reading, the US durable goods orders figures and finally the US factory orders figures.

Whilst the services composite ISM is forecast to only slightly jump from 57.4 to 57.6, the US factory orders reading is expected to have surged in November from -0.1% to 1.4%.

Such a change could help offset the recent below-forecast new job numbers, though whether it will be enough to curb the Euro’s lead waits to be seen.