EUR/USD gives up little intarady gains on expected decline in US inflation
- EUR/USD gives up some of its intraday gains as the US Dollar rebounds.
- An expected decline in the US CPI report for July reinforced a recovery in the US Dollar.
- The Euro gains on expectations that the ECB will cut interest rates more gradually.
EUR/USD falls slightly from a fresh seven-month high of 1.1035 but remains positive in Wednesday’s New York session after the release of the United States (US) Consumer Price Index (CPI) report for July. The major currency pair faces mild pressure as the US Dollar (USD) rebounds after the CPI report showed that price pressures remained in line with market expectations. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, recovers its intraday losses and rises to near 102.65 from a fresh weekly low of 102.37.
The US CPI repot showed that monthly headline and core inflation, which strips of volatile food and energy items, rose by 0.2%, as expected. Annual headline CPI rose at a slower pace of 2.9% from the estimates and June’s reading of 3%. In the same period, the core CPI decelerated to 3.2%, as expected, from the former reading of 3.3%.
On the interest rate guidance, Atlanta Federal Reserve (Fed) Bank President Raphael Bostic said on Tuesday that recent has increased its confidence that inflation will return to 2% but he wants a little more evidence to endorse interest rate cuts. It seems that an expected decline in the US inflation data would boost the confidence of policymakers that inflation is on track to return to the desired rate of 2%.
Soft inflation reading would also boost speculation that the Federal Reserve (Fed) will start reducing interest rates in September aggressively. Currently, the CME FedWatch tool shows that traders price in a 48.5% chance for a 50 basis point (bp) rate reduction in September.
Earlier, the US Dollar was on the backfoot due to a softer-than-expected US Producer Price Index (PPI) report for July. Headline and core PPI, softened on a monthly as well as annual basis. This suggests that producers are losing pricing power due to deteriorating demand conditions.
Daily digest market movers: EUR/USD remains broadly firm on Euro’s strength
- EUR/USD clings to gains above 1.1000 in Wednesday’s New York session. The major currency pair is upbeat due to the outperformance of the Euro (EUR) against its major peers. The Euro performs strongly on expectations that the European Central Bank (ECB) will cut its key borrowing rates further, although in a gradual manner.
- The ECB started its policy-easing cycle in June after officials gained confidence that price pressures will return to bank’s target of 2% in 2025. However, policymakers continued to refrain from committing a pre-defined interest-rate cut approach as they worry that an aggressive expansionary monetary policy stance could re-accelerate inflation again.
- A Reuters poll carried out between August 8-13 showed that over 80% of respondents expect the ECB to cut interest rates two more times this year, one in September and the other in December.
- On the economic front, the Eurostat has released revised estimates of flash Q2 Gross Domestic Product (GDP). The report showed that the Eurozone economy expanded by 0.3%, in line with flash figures and the growth rate recorded in the first quarter of this year.
Euro Price Today:
Euro PRICE Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the New Zealand Dollar.
| EUR | USD | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| EUR | 0.25% | 0.38% | 0.45% | 0.23% | 0.28% | 1.29% | 0.00% | |
| USD | -0.25% | 0.13% | 0.21% | -0.01% | -0.02% | 1.06% | -0.24% | |
| GBP | -0.38% | -0.13% | 0.09% | -0.13% | -0.10% | 0.93% | -0.34% | |
| JPY | -0.45% | -0.21% | -0.09% | -0.20% | -0.19% | 0.83% | -0.39% | |
| CAD | -0.23% | 0.00% | 0.13% | 0.20% | 0.00% | 1.05% | -0.19% | |
| AUD | -0.28% | 0.02% | 0.10% | 0.19% | -0.01% | 1.00% | -0.25% | |
| NZD | -1.29% | -1.06% | -0.93% | -0.83% | -1.05% | -1.00% | -1.23% | |
| CHF | -0.01% | 0.24% | 0.34% | 0.39% | 0.19% | 0.25% | 1.23% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
Technical Analysis: EUR/USD steadies above 1.1000
EUR/USD posts a fresh seven-month high above 1.1000. The major currency pair strengthens after a breakout of the Channel formation on a daily time frame. The upward-sloping 20-day Exponential Moving Average (EMA) near 1.0900 suggests that the near-term outlook of the shared currency pair is bullish.
The 14-day Relative Strength Index (RSI) jumps into the 60.00-80.00 range, indicating that the momentum has leaned to the upside.
On the upside, the August 10, 2023, high at 1.1065 and the round-level resistance of 1.1100 will act as a major barricade for the Euro bulls.
Alternatively, a downside move below August 1 low at 1.0777 would drag the asset toward February low near 1.0700. A breakdown below the latter would expose it to the June 14 low at 1.0667.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.