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Euro US Dollar (EUR/USD) Exchange Rate Boosted after Eurozone Core Inflation Rise

Euro (EUR) and US Dollar bills

Euro US Dollar (EUR/USD) Exchange Rate Climbs amid Risk-On Mood

The Euro US Dollar (EUR/USD) exchange rate is climbing today. Bets on further interest rate hikes from the European Central Bank (ECB) may be bolstering the pair after an uptick in core inflation. Evidence of easing US wage inflation could also be pushing EUR/USD higher.

At time of writing the EUR/USD exchange rate is at around $1.0605, which is up roughly 0.8% from this morning’s opening figures.

Euro (EUR) Boosted as Core Inflation Uptick Prompts Increased ECB Rate Hike Bets

The Euro (EUR) climbed against many of its peers on Friday. Bets on further interest rate hikes from the European Central Bank (ECB) bolstered EUR, as well as signs of good health in the German retail sector.

A drop to single-digit inflation in the Eurozone and a risk-on mood may be capping gains for EUR today, however. Price caps and lower gas prices caused a drop in December’s inflation to 9.2%, indicating that the trading bloc has passed peak inflation.

On the other hand, core inflation in December ticked higher to 5.2% today. The figures are likely bolstering ECB rate hike bets and pushing the Euro higher.

A rebound in German and Eurozone retail sales may also be underpinning the single currency today. Eurozone retail sales rose by 0.8% in November despite soaring prices and reduced household incomes.

US Dollar (USD) Drops amid Signs of Easing Wage Inflation

The US Dollar (USD) is falling today. The safe-haven ‘Greenback’ may be struggling amid a risk-on market mood. Signs of easing wage inflation may also be keeping pressure on USD.

The latest wage growth figures for December rose by less-than-forecast, with growth slowing to 4.6% from 5.1%. Evidence that the US may not see a wage-price spiral could be seeing a pullback in Federal Reserve interest rate hike bets, pulling USD lower.

Janet Mui, head of market analysis at RBC Brewin Dolphin, said:

‘This is a relief to market that there is no sign of a wage spiral despite a persistently strong US labour market, which will help anchor inflation expectations. Indeed, there is no sign that longer term inflation expectations have become unanchored.’

The US Dollar may be finding support from other stronger US employment data, however. An above-forecast rise in Non Farm Payrolls and unexpected drop in December’s unemployment pointed to a still-tight labour market. The figures may be helping to prop up Fed rate hike bets and the US Dollar.

EUR/USD Exchange Rate Forecast: Will Low Eurozone Unemployment Bolster ECB Bets?

Looking to the coming week for the Euro, the latest unemployment data for the Eurozone could bolster EUR on Monday if they print as forecast. November’s unemployment rate is expected to remain unchanged from record lows.

On the other hand, German GDP figures on Friday could pull the Euro lower if they cool as forecast. 2022’s full year reading is expected to fall to a 1.6% expansion, down from 2.6% expansion in 2021. The data may add to fears of a deep recession for the Eurozone.

Also on Friday, a forecast widening of the Eurozone’s trade deficit in November could add to EUR’s losses. The predicted uptick in industrial production could limit any potential downturn for the single currency, however. For the US Dollar, the latest inflation data on Thursday could prompt losses in USD if it prints as forecast. December’s inflation is expected to slip which see markets reduce bets on further interest rate hikes from the Fed.