Sun, June 16, 2024

EUR/USD at 1.0850; FTSE Falls on Royal Mail Takeover

euro, usd

Quick Look:

  • The EUR/USD pair struggles at 1.0850 amid a stronger USD driven by hawkish Fed comments and strong US consumer confidence data.
  • The USD strengthens broadly, influenced by strong consumer confidence data, the Fed’s Beige Book, and hawkish remarks from Fed officials.
The EUR/USD pair is under pressure as the US dollar strengthens. This trend follows recent hawkish comments from the Federal Reserve and robust US consumer confidence data. Concurrently, the FTSE index experiences a decline as Royal Mail’s takeover deal reaches completion.

EUR/USD Pressured at 1.0850; German Inflation Expected at 2.4%

The EUR/USD pair struggles at the 1.0850 level. USD strengthened due to hawkish Fed comments and strong US consumer confidence data. German consumer confidence slightly improved to -20.9 from -24. Economists expect the upcoming German inflation data to rise to 2.4% year-on-year from 2.2%. Technically, the pair has corrected from 1.09 and holds steady around 1.0850, above key moving averages. Bulls must break above 1.09 to target 1.0980, while bears look for a move below 1.0810 and 1.0785 to target 1.0725.

USD Strengthens on Strong Consumer Confidence Data

The US dollar has strengthened against most major currencies following strong consumer confidence data and hawkish comments from Federal Reserve officials. The primary focus now shifts to the upcoming core Personal Consumption Expenditures (PCE) index, a key indicator of inflation.

Recent events that have bolstered the USD include robust US consumer confidence figures and the release of the Fed’s Beige Book, which provided a snapshot of economic conditions. Neel Kashkari’s comments reiterating the possibility of further rate hikes have also contributed to the dollar’s strength. The economic calendar in the US remains relatively quiet until the release of the core PCE index, which is anticipated to provide further direction for the USD.

German Confidence Rises to -20.9; CPI Up to 2.4% YoY

German economic data has shown mixed results. The GfK consumer confidence index improved to -20.9 from -24, beating expectations of -22.4. However, the German CPI for the month was weaker than expected, rising by only 0.1% month-on-month versus an anticipated 0.2%, though the year-on-year rate increased to 2.4% from 2.2%. With Eurozone inflation numbers due on Friday, market participants remain watchful for further cues.

The FTSE index has faced declines, influenced by broader market sentiments and specific corporate actions. One notable development is the agreed takeover of Royal Mail, which has captured market attention. This acquisition’s completion marks a significant milestone but has also contributed to the FTSE’s recent slide.

Core PCE Index Release Key for USD Direction

The release of the core PCE price index on Friday is a significant event, potentially impacting USD strength and the attention of major FX pairs. This data point will be scrutinised for its implications on future Federal Reserve policy decisions, especially regarding interest rate adjustments.

In Australia, the latest CPI report came in higher than expected at 3.6% year-on-year, dampening hopes for a potential rate cut by the Reserve Bank of Australia. This development has influenced the USD/AUD dynamics, with the broader strength of the USD playing a crucial role.

Eurozone Wage Growth Hits 4.7% in Q1

The Eurozone has recently seen some positive economic indicators, including better-than-expected PMI data and a rise in wage growth for the first quarter. Negotiated wages increased by 4.7% year-on-year, exceeding the expected 4.0% and up from 4.5% in the previous quarter.

US Stagflation Worries Ahead of Core PCE Data

There are ongoing concerns about stagflation in the US, characterised by persistent price pressures and generally negative surprises in recent economic data. The upcoming core PCE data is expected to shed light on these inflationary trends and could influence the timing of the first anticipated rate cut, likely post-summer.

The EUR/USD remains under pressure due to a strong USD and anticipation of German inflation data. Meanwhile, the FTSE’s decline is partly attributed to the Royal Mail’s takeover. Traders will closely monitor upcoming economic indicators, particularly the core PCE index, for further market direction.

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