The Euro to US Dollar exchange has held its highs today as markets digest disappointing inflation figures for both the US and the Eurozone.
- Euro unperturbed by soft Eurozone inflation figures – Though this may give the ECB more reason to be dovish.
- US Dollar recovering from last week’s poor US inflation figures – Rate hike bets diminish.
- US Retail sales drop -0.2% in June – Expectations of strong economic growth in the second quarter tempered.
Soft Eurozone Inflation Diminishes Prospect of Hawkish ECB
The Eurozone’s inflation figures were released this morning and June’s annual figure was confirmed to have softened.
The Eurozone’s annual inflation rate dropped from 1.4% for May to 1.3% for June which was in line with the initial estimates. The core inflation rate on the other hand (year-on-year) met expectations of 1.1%, demonstrating an increase from the previous month’s 0.9%.
Despite the small increase in the core inflation value these figures were predominantly soft, something that will likely push policymakers at the ECB even further towards the dovish end of the spectrum. Indeed, this is a revelation that has driven down the perceived likelihood of a hawkish statement or amendment in the accompanying statement on Thursday’s ECB policy decision.
US Dollar (USD) Maintains Lows against Euro (EUR) after Friday’s Disappointing Data Spread
The US Dollar fell quite sharply against the Euro on Friday when US inflation data dented hopes of a Fed rate hike this year.
The core US inflation figure remained unchanged at 1.7%, as predicted, whilst the general CPI figure was revised to 1.6%, a drop from previous 1.9%. This is all the more pertinent considering that the Fed’s plans for a steady incremental increase in interest rates relies on inflation at least coming within reach of the 2% target.
Michael Feroli from JPMorgan stated:
‘The weak trajectory of consumer spending at the end of second quarter adds some challenges to the third-quarter consumption outlook, which reinforces our view that growth will step down modestly in the current quarter.’
In addition to the negative inflation stats June’s US retail sales unexpectedly dropped 0.2%, further dispelling hopes of strong economic growth for the second quarter. As a result, market bets dipped even further, with surveys only giving a 50/50 chance for a further rate hike in 2018.
EUR USD Forecast; ZEW Survey Results to Reveal Whether Eurozone Sentiment is Improving
Tomorrow will see the release of the July ZEW economic sentiment surveys; the surveying of experts throughout Europe to garner a medium-term forecast on the economic sentiment of the Eurozone and its individual nations. Should sentiment improve, it may well boost the Euro US Dollar exchange rate, though the reverse remains quite possible.
The data calendar for the US is quite sparse tomorrow, though July’s NAHB housing market index may give a semblance of insight into the direction of the American housing market and thus the economy as a whole.
Current Interbank EUR USD Exchange Rates
At the time of writing, the Euro to US Dollar (EUR USD) exchange rate was trading at 1.1467 and the US Dollar to Euro (USD EUR) exchange rate was trading at 0.8718.