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Euro US Dollar (EUR/USD) Retreats from Two-Week High on Warming US Inflation Data

Sheet of US Dollar bills

Euro US Dollar (EUR/USD) Slumps as US Data Deviates from Forecasts

The Euro US Dollar (EUR/USD) exchange rate is losing ground today amid warmer-than-forecast US inflation and a decline in US employment.  

At the time of writing the EUR/USD exchange rate is trading at $1.0964, down approximately 0.3% from this morning’s opening rate.         

US Dollar (USD) Strengthens following Inflation Data

The US Dollar (USD) is edging higher today as markets digest the latest US economic data releases.

US inflation came in warmer than expected this afternoon, at 3.4%, beating forecasts of 3.2%. While the data shows movement away from recent expectations of US disinflation, USD investors are resizing expectations of imminent Federal Reserve interest rate cuts.

Slight inflationary warming may serve to dampen bets of a March Fed rate cut, thereby lifting USD amid signs of continued restrictive policy.

Also serving to boost USD sentiment this afternoon is the latest US employment data. Initial jobless claims for the week ending January 6 were down to 202,000, missing expectations of 210,000.

An unexpected decline in US citizens claiming unemployment benefits saw emerging unemployment fall to a two-month low, serving to quell concerns of a loosening US labour market.

Furthermore, a spell of cautiously downbeat trade is lending the safe-haven ‘Greenback’ some modest support.

As today’s session continues, USD may continue to garner investor interest as markets mull over renewed signs of US economic strength.

Euro (EUR) Changeable following Mixed ECB Commentary

The Euro (EUR) is changeable today following the release of the European Central Bank’s (ECB) latest economic bulletin.

In the wake of ECB Vice President Luis de Guindos’ observations that the Eurozone may have fallen into a technical recession during last year’s final quarter, mention of sluggish economic activity in the ECB report served to reinforce concerns of economic cooling.

However, ECB policymakers remain optimistic, advocating the necessity to maintain a restrictive stance towards monetary policy, as the effects of the ECB’s rate hiking cycle begin to be felt by the wider economy.

An extract from bulletin reads:

‘According to the December 2023 projections, available short-term indicators suggest that economic activity will remain weak in the fourth quarter of 2023. However, growth is expected to strengthen from early 2024 onwards.’

Mixed observations served to leave the Euro trading without a clear direction for much of Thursday’s session, ahead of further data releases next week.

Euro US Dollar Exchange Rate Forecast: ECB Lane Speech to Drive EUR Movement?

Looking ahead, a speech from ECB policymaker Philip Lane may drive EUR volatility. Should Lane strike a hawkish tone in line with the central bank’s ‘higher for longer’ narrative regarding interest rates, the Euro could attract support. However, any suggestion of looming interest rate cuts may cause the common currency to stumble, as investors replace their ECB rate cut bets.

In the US, the latest producer price index (PPI) may drive volatility for the ‘Greenback’. Economists expect to see a marginal increase in factory inflation, warming to 0.1%. Should the data print in line with forecasts, USD could gain some modest ground as warming PPI lifts the possibility of wider warming US inflation.

In the meantime, changes in market sentiment may be a catalyst of movement in the EUR/USD exchange rate. Should risk appetite increase, both the Euro and US Dollar could gain ground due to their safe-haven statuses.