EUR to USD Exchange Rate Slips as Eurozone Inflation Misses the Mark

November 30, 2017 - Written by David Woodsmith

STORY LINK EUR to USD Exchange Rate Slips as Eurozone Inflation Misses the Mark

While the Eurozone’s economic growth outlook remains largely strong, the Euro to US Dollar exchange rate hit new lows on Thursday as the latest Eurozone inflation data fell short of expectations. The US Dollar has been supported by strong US data and tax cut hopes.

After advancing from 1.1790 to around 1.1932 last week, EUR/USD had shed around half of those gains and currently trends near a weekly low of 1.1815.

EUR Fails to Find Support in Inflation Stats

Despite recent Eurozone growth data largely beating expectations and indicating that the bloc is seeing strong growth towards the end of 2017, markets remain concerned about the bloc’s subdued inflation trends.

Eurozone inflation has been a persistent concern for Euro traders, as the European Central Bank (ECB) has insisted on keeping monetary policy loose until inflation trends pick up.

As a result, markets hoping for the ECB to hike Eurozone interest rates within the foreseeable future were disappointed by Thursday’s Eurozone Consumer Price Index (CPI) projection.

Eurozone inflation is projected to have reached 1.5% year on year in November, lower than the analyst consensus figure of 1.6%. The core inflation rate projection remained at 0.9%.

This was despite Germany’s inflation projections beating expectations on Wednesday, coming in at 1.8% year on year rather than the expected 1.7%.

Thursday’s other key Eurozone ecostats. German retail sales data disappointed, unexpectedly contracting at -1.2% month on month and -1.4% year on year.

On the other hand though, the day’s job market data was optimistic.

Germany’s unemployment change figure came in with a better than expected -18k for November, while the Eurozone’s October unemployment rate unexpectedly improved from 8.9% to 8.8%. This was the Eurozone’s best unemployment rate since January 2009 – nine years.

USD Supported by Strong Data and Tax Cut Hopes

Recent US ecostats and hopes for progress on the US Republican Party’s tax cut plans have supported the US Dollar in recent sessions, topping off a month of mostly poor performance for the ‘Greenback’.

Most of November has seen the US Dollar weighed on by a mixed 2018 outlook from the Federal Reserve, amid concerns that US inflation is slowing.

Tuesday saw the publication of CB’s November consumer confidence report for the US, which beat expectations of 124.0, rising to 129.5 instead. The previous figure was revised higher from 125.9 to 126.2.

Wednesday’s data was even more optimistic. The second Q3 US Gross Domestic Product (GDP) projections beat expectations quarter on quarter, coming in at a strong 3.3% rather than the previously projected 3.2%.

Pending home sales were also much better than expected in October, coming in at 3.5%, well above the expected 1%.

Personal consumption expenditure prices met expectations in every notable print and had little influence on the US Dollar outlook.

On top of this, the US Dollar has been boosted by news that the US Republican Party’s plans for tax cuts were seeing stronger support, with hopes building that some tax plans could be pushed through Congress as soon as Friday.

EUR/USD Forecast: Key PMI Data Ahead

Friday’s key Eurozone and US data will give investors a much better idea of how the respective economies had performed in November, as Markit and ISM will be publishing the month’s final manufacturing PMIs.

Markit will publish its November Eurozone manufacturing PMIs on Friday morning. Germany’s manufacturing projection came in at a surprisingly strong 62.5, so any figure close to or higher than that would likely support the Euro.

Euro investors may also react to Italy’s final Q3 Gross Domestic Product (GDP) results.

Friday’s American session could see even more influential news come in however, which could leave the US Dollar driving EUR/USD movement before markets close for the week.

Markit’s final US manufacturing PMI for November will be published, but ISM will also publish its more influential manufacturing PMI report.

ISM’s manufacturing report is currently forecast to have slipped slightly from 58.7 to 58.4, so a figure better than this would boost US Dollar demand.

Of course, any progress on US tax cut plans would boost US Dollar demand before the weekend too.

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TAGS: Euro Forecasts