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Rising Eurozone Inflation Fails to Boost Euro to US Dollar Exchange Rate Outlook

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Euro to US Dollar Exchange Rate Slides as Market Mood Benefits US Dollar

Despite signs of recovery in this week’s Eurozone data, as well as fresh concerns that US-China trade relations are worsening, the Euro to US Dollar (EUR/USD) exchange rate looks to be ending the week on a lower note.

Since opening this week at the level of 1.1021, EUR/USD has been trending with a downside bias as market uncertainties typically benefitted the US Dollar (USD).

As the US Dollar is the Euro’s (EUR) biggest currency rival, this has kept persistent pressure on the shared currency.

In the middle of the week, EUR/USD briefly touched on a half-month-low of 1.0994, and at the time of writing on Friday the pair was still trending low in the region of 1.1002.

Investors may become more willing to buy the Euro in the coming week if market uncertainty calms or if upcoming Eurozone stats continue to show improvement.

Euro (EUR) Exchange Rates Remain Under Pressure despite Rising Inflation

Most of this week’s Eurozone data has continued to indicate that the Eurozone economy could finally be showing signs of recovery following months of slowdown.

However, as the signs remain limited and US-China trade war tensions persist, the Euro has not found the support it needs to mount a stronger performance.

Today’s Eurozone data, for example, was fairly mixed. Optimism towards the week’s data was dampened by a concerning German retail sales report, which showed retail activity shrank by -1.9% in October.

The biggest figures of the day were Eurozone inflation projections for November, which did print stronger than expected.

Eurozone core inflation rose higher than expected to 1.3% year-on-year, while the overall inflation rate rose to a stronger than expected 1.0%.

The lack of Euro appeal following the news was due to concerns that the rise in inflation wouldn’t be sustained. According to Bert Colijn, Senior Economist at ING:

‘All in all, for the ECB this increase in inflation seems to be good news for the hawks on the surface, but more evidence of a sustained increase is unlikely to follow unless business confidence increases substantially.’

US Dollar (USD) Exchange Rates Continue to Benefit from Trade Developments

The US Dollar’s appeal in markets has persisted this week, despite an apparent shift in US-China trade relations.

For much of November, the US Dollar had been gaining on cautious hopes that the US and China were closing in on a ‘phase one’ trade deal.

This is because the US Dollar is perceived as safer than the other currencies correlated to trade tensions, but the US economy will still benefit from trade relations improving.

However, even as trade relations seemed to worsen this week, the US Dollar remained appealing.

US President Donald Trump signed a bill backing Hong Kong protestors which appeared to frustrate Beijing officials. However, with negotiation officials still attempting to hold onto the chances of a deal being reached soon, lingering trade hopes supported the US Dollar.

On top of trade hopes, the US Dollar has found support from strong US data. This week’s US growth projections beat expectations and softened Federal Reserve easing speculation.

Euro to US Dollar (EUR/USD) Exchange Rate to be driven by Key Data Next Week

Demand for the Euro to US Dollar (EUR/USD) exchange rate remains limited as US-China trade tensions and Federal Reserve speculation continue to support the US Dollar.

However, if Eurozone data continues to show signs of recovery, the pair may be in for fresh gains next month.

Next week will start out with Eurozone manufacturing PMIs from November. The projections were better than expected, so weaker finalised results would knock the Euro lower.

These will be followed by services stats on Wednesday and growth rate results on Thursday, all of which could be highly influential for the Eurozone outlook.

US data due throughout the week will also be influential for EUR/USD as it could influence Federal Reserve speculation if it surprises.

US manufacturing PMI data will come in on Monday, with non-manufacturing on Wednesday and the closely watched Non-Farm Payroll report on Friday.

Of course, any major developments in US-China trade relations are also likely to have an impact on the Euro to US Dollar (EUR/USD) exchange rate.