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Euro US Dollar (EUR/USD) Exchange Rate Rallies despite Downbeat EU Economic Outlook

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Euro US Dollar (EUR/USD) Exchange Rate Strengthens despite Bleak ECB Bulletin

The Euro US Dollar (EUR/USD) exchange rate is climbing this morning, despite a downbeat economic outlook for the Eurozone.

At the time of writing, EUR/USD is trading at around US$1.1018, rising by just under 0.4% from the morning’s opening rates.

Euro (EUR) Firms despite Downbeat ECB Bulletin

The Euro (EUR) is firming this morning, despite growing uncertainty over the Eurozone’s economic growth outlook.

This morning, the European Central Bank (ECB) released their latest economic bulletin, discussing the outlook for the bloc.

The ECB’s bulletin stated:

‘The near-term economic outlook for the euro area has deteriorated, owing largely to weaker domestic demand. High inflation and tighter financing conditions are dampening spending. This is weighing especially on manufacturing output, which is also being held down by weak external demand.’

The common currency is likely able to shrug off the downbeat readings due to its negative correlation with the US Dollar (USD). Ahead of this afternoon’s key inflation data, the ‘Greenback’ is struggling to find support, which may be contributing tailwinds for EUR.

US Dollar (USD) Edges Lower Ahead of CPI Data

The US Dollar (USD) is ticking lower this morning, as investors look ahead to the afternoon’s consumer price index data.

Over July, headline inflation is forecast to have increased to 3.3%, while core inflation is expected to have held at 4.8%.

This may spark further rate hike bets, but could also print in line with existing Federal Reserve expectations. Either way, a rise in inflation may prove irksome to the Fed as they continue to battle inflation.

Yet, as some economists are arguing, if the CPI data prints in line with forecasts, it may push the focus to other data.

Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE at ING, commented:

‘Consensus expects 0.2% MoM readings for both headline and core today – consistent with inflation running closer to the Fed’s 2% target. However, US activity data – especially the labour market and consumption data – have been stronger than expected and are likely to keep the Fed on guard for longer.’

With this in mind, USD investors are likely going to keep an equally close eye on the initial jobless claims. An uptick is expected, which could show loosening in the labour market, and counteract any bets on additional tightening.

EUR/USD Exchange Rate Forecast: US PPI Data in Focus

Looking ahead for the US Dollar, beyond the afternoon’s inflation data, tomorrow brings the release of July’s producer price index data.

Economists are forecasting a 0.2% increase on a month-by-month basis, which could work in tandem with today’s inflation data. If both releases indicate increasing inflation pressures, the ‘Greenback’ could rally amid renewed rate hike bets.

For the Euro, meanwhile, the data calendar is set to remain thin, which may leave the common currency directionless.

Elsewhere, risk appetite is likely to shape EUR/USD rates. As a safe-haven currency, a sour mood could boost USD rates over the common currency.