Euro US Dollar (EUR/USD) Exchange Rate Subdued as US Inflation Climbs to Six-Year High

July 12, 2018 – Written by John Cameron

The Euro US Dollar (EUR USD) exchange rate remained flat on Thursday as markets reacted to the latest US Consumer Price Index.

US Dollar (USD) Subdued as US Inflation Jumps a Six-Year High

The US Dollar (USD) is struggling to find any ground against the Euro (EUR) this afternoon despite an uptick in latest US CPI figures.

According to data published by the US Labour Department domestic inflation ticked up from 2.8% to 2.9% in June, striking its highest levels since 2012.

Meanwhile core inflation -which excludes volatile items such as food and energy- also rose, climbing from 2.2% to 2.3%, suggesting that underlying US inflation remains solid and resulting in both readings falling in line with market expectations.

However with the US dollar soaring higher on Wednesday on the back of whispers that inflation would outperform expectations last, the currency has been forced to step back today.

However despite the muted reaction to the figures another lift in inflationary pressure in the US should help to bolster the case for the Federal Reserve to push ahead with an additional two rate hikes this year.

James Knightley, chief international economist at ING, said:

‘US inflation is on the verge of 3 per cent and with a tight jobs market and strong economic growth the Fed will continue to raise rates, despite the worries on trade.’

However with two more hikes in 2018 already being priced in by markets, this failed to have much of an impact on the US Dollar.

Euro (EUR) Muted as European Commission Slashes Growth Forecasts

Meanwhile the Euro (EUR) exchange rate stalled today as the European Commission lowered its growth forecast for the Eurozone.

The Commission now believes that the Eurozone will expand by 2.1% in 2018, down from its previous forecast of 2.3%, predicting that the bloc’s economic growth has ‘moderated’ in the three months since its last forecast.

The slowdown in momentum was largely attributed to the sharp rise in trade tensions over the last few months, which appears to be dragging the growth prospects of major exporters such as Germany.

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs said:

‘Growth in Europe is set to remain resilient, as monetary policies stay accommodative and unemployment continues to fall. The slight downward revision compared to the spring reflects the impact on confidence of trade tensions and policy uncertainty, as well as rising energy prices.

Our forecast is for a continued expansion in 2018 and 2019, although a further escalation of protectionist measures is a clear downside risk.

Trade wars produce no winners, only casualties.’

The European Commission also warns that growth could be revised even lower in the coming months if trade tensions with the US were seen to have escalated even further, with economists fearing a full blown trade war could disrupt ‘the current global cyclical upswing’.

EUR/USD Exchange Rate Forecast: Downturn in Consumer Sentiment to Drag on the US Dollar?

Looking ahead to tomorrow’s session the EUR/USD exchange rate may be able to recoup some of its losses, following the publication of the latest US consumer confidence figures.

Growing trade tensions between the US and China and fears that US consumers could soon start to feel the bite of tariffs, has some economists forecasting that US household sentiment is likely to have dipped this month, potentially dragging on the US Dollar.

However the Euro’s advance may be limited somewhat by the release of Germany’s latest wholesale price figures, with expectations that price growth will have slowed in June.

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TAGS: Euro Forecasts