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Euro Dollar Today: EUR USD Exchange Rate Hits 8- Month Lows on Deflation Fears

July 31, 2014 - Written by David Woodsmith

The Euro to US Dollar weakened to a fresh 8-month low on Thursday after data released earlier in the session showed that the 18-member currency bloc’s annual rate of inflation fell again in July, raising fears that deflation could soon set in. The EUR USD exchange rate stands at 1.34305 (updated to relect weekend currency rates - 2nd August 2014).

According to the data released by the European Union’s statistical office, Eurostat, the regions inflation rate fell to its worst level since the height of the Euro crisis and slid deeper into what the European Central Bank calls the ‘danger zone’.

What does the EUR and USD currently look like?

- The euro to dollar exchange rate is -0.06 per cent lower at 1.33863.
- The dollar to euro exchange rate is +0.06 per cent higher at 0.74703.

Inflation rose by 0.4% this month, down from the 0.5% recorded in June and well below the ECB’s target rate of 2%. It considers any number below the 1% level to be a risk of deflation. The data released on Thursday also marks the tenth consecutive month where prices have not increased below the 1% range.

Deflation has already started to happen in a few troubled European nations. Spain, Greece and Portugal are already or are edging dangerously close to coming below the 0% inflation rate.

A separate report offered some minor support to the single currency as it showed that overall unemployment in the Eurozone fell to 11.5% in June. Down from the 11.6% figure recorded in the previous month. Unemployment fell in all members that have been hit hardest by the Euro crisis such as Greece, Spain, Italy, Portugal and Ireland.

France however saw a rise in its jobless rate, doing little to ease concerns that the nation is becoming the new sick man of Europe. The jobless rate increased to 10.2% from 10.1%.
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Despite the tiny improvement in the overall jobless rate economists said that it remained too high to put pressure on employers to increase wages, a move that would raise inflation.

“Today’s figures don’t give any assurance that the Eurozone is already out of the deflation danger zone. Moreover, with the escalating conflict with Russia dampening growth prospects, it seems unlikely that deflation fears will disappear any time soon,” said Peter Vanden Houte, an economist at the Brussels based ING Bank.

US dollar climbs to largest monthly gain vs the euro:

As the session progressed US data was released which sent the ‘Greenback’ climbing to make its biggest monthly gain since February last year as signs of the strengthening economy encourage investors to raise their bets that the Federal Reserve will raise interest rates earlier than forecast.

The diverging economies of the improving USA and stagnating Eurozone have caused the US currency to advance steadily since the ECB cut interest rates and introduced a negative deposit rate earlier in the year.

“The Dollar is at the beginning of an uptrend versus the Euro and the Yen. The market is getting increasingly hawkish about US rates. Short-term forward expectations of Fed policy have been moving forward quite steadily,” said Alvin tan a foreign exchange strategist at Societe Generale.

The US currency was supported after the Washington based Labour Department reported that the U.S. employment cost index rose by 0.7% in the three months to June after a 0.3% increase in the first quarter. It was the fastest increase since September 2008. Economists had expected a 0.5% gain.

The number of American filing for unemployment benefits fell to an eight month low on a month on month basis.

EUR USD Update - 01/08/2014



The Euro to Dollar was little changed on Friday but remains hovering close to its lowest level in eight-months.

Yesterday’s inflation data showed that inflation across the Eurozone declined further to 0.4% raising expectations that deflation could occur.

Investor attention will now be focused on next week’s ECB policy meeting to see how the Central Bank reacts to the news.
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