EUR/USD Exchange Rate Trends Lower in spite of Weaker US Inflation
Despite the US Dollar (USD) initially taking a hit in response to a disappointing US Consumer Price Index report the currency has since returned to its previous bullish form.
Inflation in the US fell back to 0.9% on the year in March, defying expectations of a modest uptick to 1.1%.
Nevertheless, the Euro to US Dollar (EUR/USD) exchange rate has remained on a downtrend at the close of the European session in the region of 1.1258.
Eurozone CPI Beats Forecasts, EUR Remains Lower Vs. USD
The Euro to US Dollar exchange rate held earlier declines following the release of the Eurozone’s final inflation figures for March despite the results improving on forecasts.
The final non-core annual figure of 0.0% was better than the -0.2% originally estimated and expectations for a revision to -0.1%.
However, the Euro failed to rally against the US Dollar amid expectations that today’s US inflation report will impress.
The EUR/GBP exchange rate, meanwhile, was trending in a narrow range ahead of the Bank of England’s latest interest rate announcement.
- Euro eroded by disappointing Eurozone industrial production figures
- EUR/GBP exchange rate climbs ahead of BoE meeting
- Poor retail sales fail to hamper US Dollar uptrend
- Eurozone CPI forecast to show weaker inflationary pressure
Euro (EUR) Trends Lower in Anticipation of Weak Eurozone Inflation
The appeal of the Euro (EUR) was dented on Wednesday by the news that the Eurozone’s industrial production had fallen further than forecast in February. Although expectations had been for a marked decline in output on the year investors were still surprised to find that production had slipped from 2.9% to just 0.8%. This seems to suggest that the Eurozone economy is feeling the negative impact of global market uncertainty more severely than previously thought.
Markets have not been inclined to particularly favour the single currency following the temporary pause of talks between Greece and its creditors, even though progress is apparently being made and the involved parties maintain an air of optimism. A particularly sharp contraction in Greece’s inflation rate is expected to have become a significant drag on the latest Eurozone Consumer Price Index, meanwhile, with the measure likely to remain within negative territory. As persistently weak inflation is a major factor in the dovish outlook of the European Central Bank (ECB) another disappointment here could see the Euro retreat further across the board.
Pound Sterling (GBP) Softens ahead of BoE Policy Meeting
Confidence in the Pound (GBP) has fallen sharply ahead of the Bank of England’s (BoE) latest policy meeting, as investors expect to see no change in the outlook of the Monetary Policy Committee (MPC). With expectations of another 9-0 vote in favour of leaving interest rates unchanged, the seemingly foregone conclusion has limited demand for Sterling despite a stronger-than-expected uptick in UK inflation earlier in the week. The case for imminent monetary tightening remains unconvincing, as Researchers at TDS note:
‘Core wage pressures have started rising in recent months (though ULC growth does remain muted), and inflation, while it picked up in March, remains subdued. The MPC has said their piece about the EU Referendum, and while they’ll likely repeat some elements of this (especially relating to uncertainty effects), it’s unlikely we’ll get any major pronouncements.’
Disappointing Retail Sales Fail to Dent US Dollar (USD) Exchange Rate
The US Dollar (USD) entered a bullish run this week after hawkish comments from Richmond Fed President Jeffrey Lacker. While Lacker is not a voting member of the Federal Open Market Committee (FOMC) in the current year, his suggestion that the Fed should continue to aim for four interest rate hikes in 2016 saw a surge in ‘Greenback’ strength. This more optimistic outlook was enough to overshadow a disappointing US Advance Retail Sales figure, which failed to rise to 0.1% as forecast to instead clock in at -0.3%.
Hopes are also high for the March Consumer Price Index, which is expected to show that inflation within the US ticked up from 1.0% to 1.1% on the year. Stronger inflationary pressure could add impetus to calls for the Fed to resume its monetary tightening cycle sooner rather than later, a prospect that could extend the US Dollar’s gains against the majors.
Current EUR, GBP, USD Exchange Rates
At the time of writing, the Euro to Pound Sterling (EUR/GBP) exchange rate was making gains around 0.7964, while the Euro to US Dollar (EUR/USD) pairing was slumped in the region of 1.1251. Meanwhile, the Pound Sterling to US Dollar (GBP/USD) exchange rate was trending lower at 1.4132.