- The strength of the US dollar is causing the EUR/USD to dip below 1.1600.
- US retail sales exceeded expectations for June, rising by 0.6% month-on-month.
- Inflation in the Eurozone remained stable in June, with a headline CPI of 2.0% and core CPI at 2.3%, matching forecasts.
The Euro (EUR) continued its downward trend against the US dollar on Thursday, pressured by a stronger dollar and positive US economic indicators. The solid retail sales figures and a robust Philadelphia Fed manufacturing report have elevated expectations that the Federal Reserve will maintain a longer period of interest rate hikes, thereby boosting demand for the dollar and weighing down the Euro.
During the American trading session, the EUR/USD was hovering close to the significant psychological barrier of 1.1600. By the latest update, the pair had dropped roughly 0.50% to around 1.1586, with sellers dominating after a series of strong data releases from the US.
A new set of economic figures from the US showed persistent consumer activity and a stable labor market. Retail sales for June rose 0.6%, smashing the forecast of a mere 0.1% increase, especially after a notable decline of -0.9% in May. Core retail sales, which exclude automobiles and gas, also improved, climbing 0.5% from the previous month’s 0.2% jump.
The first-time unemployment claims this week totaled 221,000, which was below the anticipated 235,000, signaling continued strength in the labor market. The standout figure came from the Philadelphia Fed Manufacturing Index, which notably improved from -4.0 in June to a surprising 15.9 in July, far beyond the expected -1. This data has reinforced the notion that the Federal Reserve might consider maintaining higher interest rates, which strengthens the dollar and adds pressure on currencies like the Euro.
On the Eurozone front, the inflation statistics released earlier did little to boost the Euro. The headline Consumer Price Index (CPI) rose by 2.0% year-on-year in June, aligning with expectations and ECB targets. The core CPI, excluding food and energy, remained unchanged at 2.3%. While services inflation continued to rise, the enduring weakness in energy prices has mitigated broader price pressures. This data supports the view that the ECB is likely to adopt a steady approach in its upcoming meeting, especially as inflation appears to be stabilizing.
Additionally, market attention has turned towards trade negotiations, with hopes that discussions between the US and the EU will advance by August 1st. The EU trade chief is currently in Washington for urgent talks, though uncertainty still looms large. The potential for renewed tariffs introduces another layer of risk for the Euro, particularly as investors contemplate possible economic impacts in heavily export-dependent sectors.
