Market Overview: EUR/USD Drops Post US Inflation Data
- After a notable rise in US producer price indices (PPIs) for July, EUR/USD decreased by 0.57%, landing at 1.1638.
- Inflation is impacted by tariff adjustments, while unemployment claims show a slight decline, pointing to a sturdy labor market.
- The market is beginning to discount a Federal Reserve rate cut of 50 basis points in September.
On Thursday, the EUR/USD pair is expected to take a significant downturn due to the latest inflation figures from the US, which reshaped expectations for a 50 basis point cut in Federal Reserve rates this September. Presently, the pair has declined to 1.1638.
The US Bureau of Labor Statistics reported a swift increase in both headline and core PPIs, largely driven by heightened tariff rates. At the same time, new unemployment claims dipped, indicating potential stability in the job market, as per the Department of Labor.
This recent information has led market players to rule out drastic rate cuts. Instead, there’s a growing sentiment that the Fed might maintain current rates during the upcoming September 16-17 meeting.
Following these reports, statements from some Federal Reserve officials emerged. St. Louis Fed President Albert Musalem noted that inflation appears to be close to 3%, attributing this to tariffs impacting overall prices. Meanwhile, Richmond Fed President Thomas Birkin remarked on an uptick in business sentiment, though it doesn’t seem to be reflective of job security.
Over in the eurozone, June saw a significant drop in industrial production, largely influenced by struggles in German production and sluggish consumer goods output, although GDP outcomes aligned with expectations.
While weaknesses persist in the current statistics, there are still potential upward trends for EUR/USD. Expectations are that the Fed might cut rates in September, while many economists believe the European Central Bank (ECB) will keep rates unchanged. This move would narrow the interest rate gap between the US and eurozone, likely boosting the euro’s strength.
No significant economic releases are scheduled from the European Union on Friday. Meanwhile, in the US, key data regarding Retail Sales, Industrial Production, and the University of Michigan Consumer Sentiment Index will be published.
Daily Digest: Euro Movement Affected by Inflation Reports
- Following updated US employment and inflation data, EUR/USD has dropped. The latest claims for unemployment benefits fell to 224,000 for the week that ended on August 9, surpassing prior expectations of 228,000.
- July’s factory gate inflation, or PPI, surged by 0.9% month-over-month, rebounding from flat readings in June. Yearly PPI jumped from 2.4% to 3.3%, notably exceeding the anticipated 2.5%. Core PPI serves as a favored inflation measure for the Fed, rising above June’s 2.6% and suggesting that businesses are passing on tariff-induced costs to consumers.
- Meanwhile, the eurozone’s GDP for the second quarter showed a year-on-year increase of 1.4%, in line with expectations, while quarterly performance met the unchanged forecast of 0.1%. However, industrial output dipped sharply in June after a 1.7% increase in May.
- The US Dollar Index, which monitors the dollar against a basket of currencies, rose about 0.42% to 98.19, creating headwinds for the EUR/USD pair.
- Latest economic indicators from the US have fueled speculations about the Federal Reserve potentially revisiting its easing strategy during the September meeting, with a 92% chance for a 25 basis point cut.
- As for the ECB, it appears likely to pause any rate reductions in September, holding a 90% probability of maintaining current rates.
Technical Outlook: EUR/USD Faces Pressure Below 1.1650
The uptrend for EUR/USD seems resilient, although it has dipped near the 20-day simple moving average around 1.1624-1.1630. Given this proximity, traders might aim to test the 1.1600 mark soon. If that level is broken, the next key support is around 1.1500.
Conversely, should the EUR/USD rise above 1.1650, there could be a shift toward 1.1700. A breach at that level would expose recent highs, which are 1.1730, 1.1759, and 1.1829.
