A surprise widening of the Eurozone trade surplus kept Euro exchange rates on a bullish run, bolstering confidence in the domestic outlook.
This added to Tuesday’s better-than-expected German and Italian gross domestic product data, with signs pointing towards the currency union ending the year on a strong note.
All in all investors saw little reason not to favour the single currency at this juncture, even though the European Central Bank (ECB) is likely to maintain a neutral policy outlook for some time to come.
Even so, the Euro US Dollar exchange rate is vulnerable to downside pressure if the finalised Eurozone consumer price index confirms a slight easing in inflationary pressure.
As policymakers have already expressed scepticism over the nature of the recent strengthening in inflation a weaker showing here is likely to increase the ECB’s dovish leanings.
On the other hand, any upwards revision to the finalised figure could give the single currency a fresh boost against its rivals.
Rising Inflationary Pressure Boosts US Dollar on Fed Rate Hike Bets
The EUR USD exchange rate was forced to give up most of Wednesday’s gains, however, in the wake of the latest US consumer price index report.
While inflationary pressure showed some signs of easing on the year this was overshadowed by a surprise uptick in the core CPI measure, which strips out more volatile elements of the overall measure.
This suggests that underlying inflationary pressure within the US economy is continuing to build, something which is likely to be greeted positively by Federal Reserve policymakers.
Even though this is not the Fed’s preferred measure of inflation the positive showing still adds weight to bets that the central bank will raise interest rates again in December.
All signs continue to point towards a positive outlook for the world’s largest economy, as analysts at Nomura commented:
‘We expect the US economy to continue to grow slightly above potential. Consumer spending has been growing steadily and investment has picked up from 2016. Despite the temporary hurricane impact, job gains remain strong, above the sustainable pace, pushing down the unemployment rate to levels not seen since 2001. However, productivity growth has been soft, held down by structural declines in underlying business dynamism (e.g., the rate of new business formation, churn within existing firms, and workers changing jobs). We expect these declines to weigh down wage growth.’
Still, as a December rate hike is already effectively priced into USD exchange rates already the upside potential of the ‘Greenback’ remains somewhat limited.
As a result any disappointment from Thursday’s jobless claims and production data could see the US Dollar trending lower once again.
Current EUR USD Interbank Exchange Rates
At the time of writing, the Euro US Dollar exchange rate was trending narrowly in the region of 1.1792. Meanwhile, the US Dollar Euro exchange rate was making gains around 0.8477.