Euro US Dollar (EUR/USD) Exchange Rate Benefits as US Inflation Eases
A surprise dip in March’s US personal consumption expenditure core data gave the Euro to US Dollar (EUR/USD) exchange rate a boost this afternoon.
As the headline annual core PCE unexpectedly eased from 1.7% to 1.6% this suggests that inflationary pressure within the US economy is softening.
The mood towards the US Dollar (USD) naturally soured in the wake of the data, given that the PCE remains the Federal Reserve’s preferred gauge of inflationary pressure.
This weaker showing suggests that the Fed is likely to leave interest rates on hold for longer, further diminishing the odds of a 2019 rate hike.
A sharp decline in the latest Dallas Fed manufacturing activity index also put pressure on USD exchange rates today, adding to worries that the world’s largest economy is losing its momentum.
Lack of Spanish Parliamentary Majority Limits Euro (EUR) Upside
After Sunday’s Spanish general election failed to deliver a parliamentary majority, however, the Euro (EUR) struggled to capitalise on its rival’s weakness.
With a sense of political uncertainty looking set to hang over Spain, and the wider Eurozone by extension, in the weeks ahead the appeal of the Euro diminished.
April’s disappointing Eurozone economic confidence index added to the sense of bearishness, limiting the gains of the EUR/USD exchange rate.
However, the single currency could find a strong rallying point on the back of tomorrow’s German consumer price index data.
With forecasts pointing towards German inflationary pressure picking back up on the year, accelerating from 1.3% to 1.5%, EUR exchange rates could gain a significant boost.
As long as inflation within the Eurozone’s powerhouse economy shows signs of picking up the case for continued European Central Bank (ECB) dovishness looks set to diminish.
Stronger US Consumer Confidence to Bolster US Dollar (USD) Exchange Rates
Even so, demand for the US Dollar could strengthen on Tuesday afternoon if April’s US consumer confidence index rises as anticipated.
Investors expect to see the index improve from 124.1 to 126.5, indicating that US households are largely shaking off the impact of escalating trade tensions.
If the index fails to show an improvement on the month, though, the EUR/USD exchange rate may find an additional boost.
Another month of weakening pending home sales may also drag on the US Dollar in the near term, with any fresh signs of weakness likely to discourage investors.
Unless the US economy can demonstrate greater signs of resilience USD exchange rates could struggle to return to an uptrend this week.
However, ahead of Friday’s non-farm payrolls report the downside bias of the US Dollar also looks set to remain somewhat muted.