The Euro continues to languish below the 1.10 mark against the US dollar as market participants remain uncertain about further interest rate hikes in the US after the release of higher than expected US inflation data boosted the US Dollar as market participants took long positions in expectations of higher yields.
The publication of the latest CPI reading from the world’s largest economy was a mixed bag and on an annualised basis, core inflation actually decreased below the previous reading of 4.8% while headline price pressures increased. The data sparked mixed reactions, although hopes for a hawkish Fed response were limited.
After the release of the news Fed official Mary Daly. Daly assured markets that the central bank had ‘still more work to do’, implying the door wasn’t completely closed on further interest rate hikes.
At the end of the week, US PPI data encouraged further bullish momentum, as both core and headline producer prices increased by more than expected in the year to July which showed the business sector was moving forward and for now is tolerating the higher interest rates.
A relative lack of European data exposed Euro to further losses which wasn’t helped by German industrial production which fell by more than expected and also news of Italy introducing a one-off 40% tax on bank profits which weighed further on the European currency.
The European Central Bank also has doubts at the moment about its own economy and released a stark warning that there may be tough times ahead for the Euro block.
‘The near-term economic outlook for the euro area has deteriorated, owing largely to weaker domestic demand. High inflation and tighter financing conditions are dampening spending. The outlook for economic growth and inflation remains highly uncertain.’
Looking ahead this week, the Euro will look to recover above the 1.10 mark against the greenback and the economic news that may drive this move will be the release of data such as the Zew economic survey from Germany as well as the all-important consumer price index figures from the Eurozone as a whole.
From the US the latest retail sales figures and industrial production figures will be the leading drivers for the EUR/USD currency pair.