Mon, July 22, 2024

EUR/USD Forecast: Dollar Rallies as Euro Hits 1-Month Low

Euro (EUR) fell before the ECB meeting. What about the dollar?

Quick Look:

  • ECB’s rate cut and political shifts undermine the EUR as the USD strengthens with easing inflation.
  • Air fell below 1.0700, its lowest in over a month, amid volatile market conditions.
  • Mixed signals with CPI at 3.3% in May; FOMC keeps interest rate steady, revealing uncertainty about future cuts.
  • Far-right victories in elections prompt French President Macron to call for early elections.

European uncertainties and the recent rate cut by the European Central Bank (ECB) have significantly undermined demand for the Euro. This weakening has come amid a strengthening US Dollar, which continues to gain traction as inflation shows signs of easing. Despite renewed expectations for interest rate reductions in the United States, the EUR/USD pair is projected to keep falling, even though it is currently trading at its lowest point in over a month.

The EUR/USD pair fell below the 1.0700 mark on Friday, marking its lowest level over a month. Earlier in the week, on Wednesday, the pair had reached a high of 1.0851, buoyed by weaker-than-expected US inflation data. These price movements reflect the ongoing volatility and the shifting economic landscape influencing the currency markets.

Far-Right Wins in EU Elections Impact EUR/USD Stability

The recent European Parliamentary Elections brought significant changes to the political landscape in several key nations. Far-right parties achieved notable victories in France, Austria, and Germany, signalling a shift in voter sentiment and political dynamics. In response to these results, French President Emmanuel Macron called for an early parliamentary election, aiming to stabilise the political environment and address the emerging challenges posed by the rise of these parties.

June Consumer Sentiment Index Drops to 65.6

The latest Bureau of Labor Statistics report provided mixed signals about inflation in the United States. The Consumer Price Index (CPI) increased by 3.3% year-on-year in May, slightly down from 3.4% in April, indicating a modest easing of inflation. Core CPI readings were below forecasts and showed a decrease from April levels, contributing to a mixed economic outlook.

Meanwhile, the Federal Open Market Committee (FOMC) kept the benchmark interest rate unchanged at 5.25% to 5.50%. The Summary of Economic Projections (SEP) revealed a split among committee members regarding potential rate cuts 2024, reflecting uncertainty about future monetary policy.

Investors Flock to US Dollar Amid EU Turmoil

Investors have increasingly moved towards the safe-haven US Dollar amidst European political turmoil and mixed economic data from the US. While speculation about future Federal Reserve rate cuts has been rife, the Dollar has maintained its strength. European bonds have lost attractiveness, negatively impacting local stock markets and the Euro. The recent rate cut by the ECB has also been bearish for the Euro, adding to the currency’s woes. Furthermore, the performance of Wall Street and US Treasury yields has influenced demand for the US Dollar, reinforcing its current dominance.

EUR/USD Key Economic Data Ahead: EU HICP, US Retail Sales

Looking ahead, several important events are set to shape the market. The Eurozone is scheduled to release the final estimate of the May Harmonized Index of Consumer Prices (HICP). Germany will reveal the June ZEW survey on Economic Sentiment and May PPI data. The focus will be on May Retail Sales figures in the United States. Additionally, the Hamburg Commercial Bank (HCOB) and S&P Global will release preliminary estimates of the June Manufacturing Purchasing Managers Index (PMI) for major economies. These events will provide further insights into the economic outlook and could significantly impact the EUR/USD pair in the coming days.

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