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Euro US Dollar Outlook: Eurozone Inflation remains Key for Future EUR Movement

ECB President Mario Draghi

The Euro has recently dipped against the US Dollar, but could be on track to rally if Eurozone inflation consistently climbs higher.

Euro Rally Possible on Higher Inflation Figures

For Euro movement in the near-term, inflation rates may prove highly influential. Higher inflation is generally considered a strong influencer for the European Central Bank (ECB), as it would pressurise the ECB into raising interest rates.

The ECB’s longstanding target of 2% inflation remains, but in 2017 the rate has only touched a 1.9%-2% figure twice.

If inflation persistently fails to rise back up to this level or even falls down below 1%, then the Euro may tumble against the US Dollar.

As well as looking to upcoming Eurozone inflation rate figures, it will also be worth watching for any comments from ECB officials to see whether the inflation target will remain a key factor in considering higher interest rates.

In this context, Eurozone inflation figures on August 17th are tipped to show 1.3% for annual inflation, but a dip to -0.5% on the month in July.

Future US Dollar Movement may depend on Trump Public Image

As recent US Dollar movement has shown, President Donald Trump remains a strong influencing factor on perceptions about the US economy.

When Trump first took office in January, there was an initial rise in economic optimism, due to the so-called ‘Trump Bump’. This led to stock market growth, something Trump personally attributed to his leadership.

As the end of the year approaches, however, this initial optimism has been fading, especially in the wake of Trump’s recent comments on the Charlottesville unrest.

After a civil rights activist was killed during protests, Trump initially blamed both sides of the struggle, before specifically targeting white supremacist groups as the problem. Since then, however, Trump has reverted to his earlier stance and condemned the ‘alt-left’, as well as the ‘alt-right’.

According to Brian Levin, a Director at California State University, this change of heart is ‘seriously undermining the legitimacy of this president’.

The US Dollar promptly dropped after Trump’s third statement on Charlottesville, and this could be an indicator of future USD declines. If Trump continues to adopt the unpopular or even controversial approach on key national and international issues, traders and economists may give up on the US economy, leading to a progressive US Dollar slide over time.

Recent Interbank EUR USD Exchange Rates

At the time of writing, the Euro to US Dollar (EUR USD) exchange rate was trading at 1.1728 and the US Dollar to Euro (USD EUR) exchange rate was trading at 0.8524.