Risk of Falling Eurozone Inflation Causes EUR/USD Exchange Rate Decline
The Euro (EUR) has made a small decline against the US Dollar (USD) today, in the wake of data confirming that German inflation rates slowed during June.
The finalised figures have shown that base annual inflation slowed from 2.2% to 2.1%, while the monthly inflation rate fell further with a shift from 0.5% to 0.1%.
These outcomes were largely forecast by currency traders beforehand, but the confirmation has still lowered confidence and worsened the EUR/USD exchange rate.
Because Germany has such a large economy, slowing inflation here could mean that the overall Eurozone inflation rate declines.
This would reduce the likelihood of a near-term interest rate hike from the European Central Bank (ECB), especially if inflation fell below the 2% target range.
US Dollar to Euro (USD/EUR) Exchange Rate Rises as Trump Blasts NATO Spending
The US Dollar (USD) has made tentative gains against the Euro (EUR) today, although elsewhere the US currency has traded tightly against other peers.
This generally-positive performance comes after a tumultuous NATO meeting in Brussels, where President Donald Trump turned on fellow members over spending.
Mr Trump didn’t attempt to remove the US from the international security agreement, but still took issue with missed spending targets.
As well as pressing other NATO members to reach the spending target of 2% of national GDP, Mr Trump also demanded this target be raised to 4%.
At a surprise press conference just before leaving, Mr Trump intimated that other countries would now meet the 2% target after his asking them to do so.
Today’s USD/EUR rise is mainly because the meeting didn’t lead to a US departure from NATO, rather than any particular USD trader confidence.
Euro to US Dollar Exchange Rate Forecast: Will EUR/USD Fall Further on Faster US Inflation?
The Euro’s (EUR) present difficulties in trading against the US Dollar (USD) could worsen in the near-term, when US inflation rate data comes out this afternoon.
The US inflation readings for June are predicted to show growth for monthly and annual fields, which might lead to a sharp USD/EUR exchange rate rise.
A faster pace of US inflation would increase the pressure on the Federal Reserve, the US central bank, to consider raising interest rates.
Higher inflation means more price pressure on US consumers; raising interest rates can lower prices by pushing more households to save instead of spend.
USD traders are widely predicting at least two more interest rate hikes in 2018, so strong inflation rate stats this afternoon could increase the value of the US Dollar.
Looking beyond this afternoon, the next Eurozone economic data that might affect the EUR/USD exchange rate will be Monday’s Eurozone trade balance reading.
Covering changes in May, this is tipped to show an expansion of the existing surplus from €16.7bn to €23.6bn.
The Eurozone has maintained a trade surplus since February 2017, so another surplus reading could boost Euro trader confidence and cause a EUR/USD advance.