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Euro US Dollar (EUR/USD) Fluctuates amid Stubborn Eurozone Inflation  

Euro (EUR) and US Dollar bills

Euro US Dollar (EUR/USD) Unclear as Eurozone Inflation Beats Forecasts

The Euro US Dollar (EUR/USD) exchange rate is moving without a clear trajectory this morning despite warmer-than-forecast inflation in the Euro bloc.

At the time of writing the EUR/USD exchange rate is trading at $1.0820, virtually unchanged from this morning’s opening rate.

Euro (EUR) Mixed amid Sticky Inflation  

The Euro (EUR) is volatile this morning with both headline and core inflation in the Eurozone coming in stickier-than-expected.

Headline inflation eased to 2.6% in February’s annualised figure, rather than cooling to 2.5% as expected. Similarly, core inflation fell to 3.1%, beating forecasts of 2.9% for the same period. Warmer-than-expected Eurozone inflation serves to quell speculation of any hasty unwinding from the European Central Bank (ECB) next month.

However, seemingly slow and steady disinflation appears to have had little impact on market bets of a June interest rate cut, leaving EUR trapped in a narrow range against the majority of its peers.

Joshua Mahony, Chief Market Analyst at Scope Markets, noted:

‘A 0.6% gain for the month of February alone does dent hopes of a sharp decline back down to target in the coming months, feeding off the back of yesterday’s concerning 0.8% reading out of France.

With both headline and core inflation coming in above estimates, traders will be keeping a close eye out for any change in stance from the ECB at Thursday’s monetary policy announcement.’

Also released this morning was the Eurozone’s latest labour data, serving to underpin the common currency. Unemployment dipped to 6.4% as expected in January, falling to a historic low, with signs of a resilient labour market buoying EUR.

US Dollar (USD) Wavers ahead of PMI

The US Dollar (USD) is trading without a clear direction this morning ahead of market moving data due this afternoon.

The latest American ISM manufacturing PMI for February is due for release later today, with economists forecasting improved factory activity last month. The index is expected to rise from 49.1 to 49.5, signalling that the manufacturing sector is slowing less dramatically than in previous months. However, should the data print in contraction territory for a sixteenth consecutive month, the ‘Greenback’ could falter.

Francesco Pesole, FX Strategist at ING, commented:

‘Given the index has been in contraction for a very long time, downside surprises may not have the same impact as a rebound to 50+. So, there are some upside risks for the dollar today.’

USD investors thereby appear reluctant to place any aggressive bets ahead of this afternoon’s supporting data. Further limiting the safe-haven US Dollar’s movements this morning is a mixed market sentiment, as China’s better-than-forecast Caixin PMI rocks global trading conditions.  

Euro US Dollar Exchange Rate Forecast: ISM PMI to Dent the ‘Greenback’?

Looking ahead, the aforementioned ISM manufacturing PMI will likely be a core catalyst of USD movement later today, with a negative reading likely to weigh on the ‘Greenback’.

Otherwise, a series of speeches from Federal Reserve policymakers could imbue the US Dollar with additional volatility. Should Fed officials continue to push back against imminent monetary loosening, hawkish sentiment may serve to cushion USD’s downside risks.

For the Eurozone, no further impactful data is due for the remainder of the week. This may leave the common currency to trade on its negative USD correlation this afternoon, amid impactful American data releases.