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Euro US Dollar Forecast: Will Strong US Inflation Send EUR/USD Lower?

US Dollar Currency Forecast

Euro US Dollar (EUR/USD) Exchange Rate Falls as US Unemployment Nears 50-Year Low

At the start of the week, the Euro US Dollar (EUR/USD) exchange rate slumped as the Eurozone’s largest economy saw its harmonized consumer prices edge up by 0.9%.

This was the lowest reading since November 2016 and the fifth consecutive month that inflation has remained below the European Central Bank’s (ECB) target.

Meanwhile, on Tuesday the US Dollar was able to rise to a 29-month high against rival currencies as markets priced in a lower chance of further US Federal Reserve rate cuts this year.

However, US manufacturing data revealed the sector had slumped further into contraction despite expectations it would claw its way above the 50 no-change mark.

Factory activity fell to a decade low, and Deutsche Bank Securities chief economist, Torsten Sløk stated:

‘This is serious. There is no end in sight to this slowdown, the recession risk is real.’

Meanwhile, the pairing rose as data revealed that private US employers did not hire as many people as expected, suggesting a slowdown in the labour market.

However, at the end of the week data showed that US job growth increased moderately with the unemployment rate sliding to a near-50 Year low which buoyed the US Dollar.

Non-farm payrolls increased by 136,000 jobs in September, while August’s figure was upwardly revised to 168,000 from 130,000.

The data showed that the US-China trade war may be making a mark on the economy as even though job creation had slowed, it has not collapsed.

At the end of the week, the pairing was left under pressure as the World Trade Organization (WTO) gave the United States the go-ahead to hit $7.5 billion worth EU goods with tariffs annually.

Disappointing German Inflation to Weigh on the Euro (EUR)

At the start of the week, the Euro (EUR) could slump against the US Dollar (USD) following the release of August’s German factory orders.

If orders plummet further than expected, single currency sentiment will slide.

Meanwhile, further disappointing data from the bloc’s largest economy could send the Euro lower on Tuesday.

If German industrial production slides further than forecast, the Euro is likely to slide against the Dollar.

Meanwhile, the single currency could end the week lower following the release of September’s German harmonized Index of Consumer Prices.

If German inflation continues to fall below the European Central Bank’s (ECB) target, the Euro US Dollar (EUR/USD) exchange rate is likely to slide.

Will Inflation Buoy the US Dollar (USD)?

On Wednesday, the US Dollar (USD) could edge down against the Euro (EUR) following the release of the Federal Open Market Committee (FOMC) meeting minutes.

If the minutes are overly dovish and suggest the committee is considering a further rate cut in the future, the ‘Greenback’ could fall.

Meanwhile, on Thursday, the Dollar could edge up against the single currency following the release of September’s US Consumer Price Index (CPI).

The Dollar could rise if inflation rises as expected and remains around the Federal Reserve’s target.

Face-to-face US-China trade talks are also scheduled to happen next week, which could cause movement in the ‘Greenback’.

If reports reveal talks are not progressing as successfully as expected, the safe-haven USD could rise, and the Euro US Dollar (EUR/USD) exchange rate could slide.