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Euro US Dollar (EUR/USD) Exchange Rate Muted as European Commission Stresses Need to Lower Italian Debt

Euro exchange rate forecast

Italian Budget Spat Limits Euro US Dollar (EUR/USD) Exchange Rate Potential

Worries over the ongoing budget spat between the Italian government and EU officials continued to limit the appeal of the Euro (EUR) this morning.

Markets remain wary of the prospect of a fresh Eurozone debt crisis as a result of Italy’s plans to target a higher budget deficit in excess of the EU’s 2% rule.

Although European Commissioner Pierre Moscovici adopted a conciliatory tone in comments he maintained that ‘we need, absolutely, to make sure that the Italian debt decreases and the stability of the Eurozone is ensured’.

As Italian officials have shown no signs of budging the disagreement looks set to rumble on for some days yet, limiting the potential for the Euro to US Dollar (EUR/USD) exchange rate gains.

US Dollar (USD) Strength Falters as Trump Attacks Fed Interest Rate Policy

The mood towards the US Dollar (USD) soured overnight as the Trump administration levelled fresh criticism at the Federal Reserve.

As Trump criticised the Fed’s push towards higher interest rate hikes this put USD exchange rates under a degree of pressure, even as global markets went into reverse.

Further volatility looks likely for the US Dollar this afternoon with the release of September’s US consumer price index data, as markets anticipate an easing in inflationary pressure on the year.

As analysts at Deutsche Bank noted:

‘The consensus doesn’t expect much to happen, but then again it rarely has for this data print over the last few years. The consensus forecast is again at +0.2% mom for the core for the 36th successive month. DB is at +0.25% mom so we think it could round up to 0.3%.

‘Given the recent risk sell-off, you’d have to say that there is scope for a decent relief rally on a softer number. Medium-term though, signs of higher inflation would be much worse for risk than softer inflation would be positive.’

If the CPI data falls short of forecast this could undermine market bets on the prospect of an imminent Fed interest rate hike, leaving USD exchange rates on a softer footing.

Contracting Eurozone Production Forecast to Weigh on Euro (EUR) Exchange Rates

Demand for the Euro may diminish further ahead of the weekend as forecasts point towards a fresh contraction in Eurozone industrial production.

Evidence that production continued to fall in August is likely to undermine confidence in the outlook of the Eurozone economy, especially in the face of ongoing global trade tensions.

With exports already in decline another weak showing could see the EUR/USD exchange rate slump sharply.

However, the finalised German consumer price index data for September may offer the single currency a boost.

While no change is anticipated from the initial inflation reading confirmation that prices picked up on the month is likely to give EUR exchange rates a boost.

Although any European Central Bank (ECB) interest rate hike remains a distant prospect an uptick in inflationary pressure could still shore up the Euro to US Dollar (EUR/USD) exchange rate tomorrow.