The euro (EUR) saw a slight increase against the U.S. dollar (USD) on Thursday, largely driven by a general weakness in the dollar itself. Traders seemed to overlook some strong economic indicators from the U.S. At this point, EUR/USD is hovering around 1.1742, bouncing back from the previous day’s dip.
Recent data from the U.S. highlighted stable inflation levels along with solid growth. Core personal consumption expenditures (PCE) rose by 2.9% in the third quarter compared to the previous one, which aligned with forecasts and remained unchanged from before.
The annualized Gross Domestic Product (GDP) also increased by 4.4% in the third quarter, surpassing the predicted 4.3% and marking an improvement from 3.8% in the second quarter. On the flip side, new claims for unemployment insurance went up to 200,000 from last week’s adjusted figure of 199,000, though this was still significantly lower than the expected 212,000.
Core PCE inflation ticked up by 0.2% from October to November, meeting expectations with an annual rate rising slightly from 2.7% to 2.8%. Likewise, the composite PCE showed a 0.2% monthly increase, which also matched predictions, nudging the annual growth from 2.7% to 2.8%.
Personal income saw a rise of 0.3%, although this was below the anticipated 0.4% growth; yet it was better than the 0.1% increase observed in October. Personal spending also went up by 0.5%.
From the perspective of monetary policy, these numbers reinforced the view that the Federal Reserve can remain patient for now. Many market observers are expecting interest rates to hold steady at the Fed’s meeting scheduled for January 27-28. Interestingly, a recent Reuters poll indicated that 55 out of 100 economists believe the first rate cut might not happen until after June.
Meanwhile, the dollar faces downward pressure due to dovish sentiments from the Fed and ongoing worries regarding potential political interference with its independence. This has made any significant recovery for the dollar seem unlikely. The U.S. Dollar Index (DXY), which gauges the dollar’s performance against a basket of six major currencies, fell approximately 0.41%, trading around 99.37.
Additionally, markets reacted positively to a reduction in trade tensions between the U.S. and the European Union (EU). This came after President Donald Trump backtracked on plans for additional tariffs due to be imposed on February 1, following a productive meeting with NATO Secretary-General Mark Rutte, which led to a framework agreement concerning Greenland and the Arctic region.
Regarding the euro, recent communications from the European Central Bank (ECB) indicated that there’s no rush to modify interest rates. Officials mentioned that economic activity in the eurozone has proven to be “more resilient than previously expected,” while the inflation outlook appears “favorable.” They also emphasized the importance of having “full options in either direction” as they approach future meetings.
