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Euro US Dollar (EUR/USD) Exchange Rate Slides amid Cooling EU Core Inflation

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Euro US Dollar (EUR/USD) Exchange Rate Crashes as EU Core Inflation Cools

The Euro US Dollar (EUR/USD) exchange rate is falling this morning, following news that core EU inflation is cooling.

At the time of writing, EUR/USD is trading at around US$1.0868, falling by just under 0.6% from the morning’s opening rates.

Euro (EUR) Falls amid Core Inflation Cooldown

The Euro (EUR) is falling against most major peers this morning, following a disappointing spate of inflation data. While headline inflation printed higher than forecast, core inflation dropped as expected.

Moreover, analysts believe that the data still indicated a broadly deflationary trend. Because of this, the expectation is that inflation may fall further in the near future.

Bert Colijn, at ING, explains:

‘This will fuel concern about inflation remaining more stubborn than anticipated. The overall trend in inflation remains cautiously disinflationary though as developments in goods and services inflation were more or less as expected.’

Furthermore, strength in the US Dollar (USD) could be weighing on the Euro today, as the pairing shares a negative currency.

US Dollar (USD) Firms as Investors Anticipate Core PCE Data

The US Dollar (USD) is strengthening this morning, as attention shifts towards the afternoon’s core PCE price index.

With the Federal Reserve’s preferred gauge of inflation forecast to have increased in July, investors are likely betting on additional tightening.

The Fed are still aiming to cut inflation down to 2%, and have shifted to a more data driven approach. With this in mind, an increase in the gauge would likely prompt an additional rate hike in September.

However, recent data has indicated a slowdown in the labour market. Because of this, the Fed may have little room to manoeuvre as further hikes could push the needle into over-tightening territory.

Elsewhere, a mixed market mood could be lending safe-haven flows to the ‘Greenback’ this morning.

EUR/USD Exchange Rate Forecast: Non Farm Payrolls Drop to Dent USD?

Looking ahead for the US Dollar, the core catalyst of movement is likely to come on Friday. Then, August’s non farm payrolls data is scheduled for publication, capping a week of impactful jobs data.

Economists forecast that the number of jobs created fell on a monthly basis, from 187,000 to 170,000.

If this prints as expected, the ‘Greenback could weaken as it would likely confirm a cooldown in the US labour market. This would, in turn, likely prompt investors to adjust their bets on further tightening from the Fed.

This is followed by the latest ISM manufacturing PMI. Economists anticipate a modest improvement in August’s activity, but that the sector would remain in contractionary territory, which may do little to cheer USD investors.

For the Euro, the data calendar is set to become lighter through to the end of the week. However, final readings of the latest private sector indexes are due tomorrow.

If these display any significant deviation, the Euro could move in tandem with them. On the other hand, if they confirm a sharp slowdown in the EU economy, EUR rates could fall.