The EURUSD currency pair weakened to near 1.0835 in Monday’s European trading, declining amid uncertainty ahead of the Eurozone preliminary Harmonized Index of Consumer Prices (HICP) for July and the Fed’s monetary policy announcement on Wednesday.
Eurozone Inflation and Economic Outlook
The Eurozone inflation data will indicate whether market expectations for two more rate cuts by the European Central Bank this year are appropriate. A few ECB policymakers are comfortable with speculation of two more rate cuts amid a dismal economic outlook and confidence that price pressures are on track to return to the desired rate of 2% next year.
Admitting to slower demand in the Eurozone’s largest nation, German Finance Minister Christian Lindner announced tax relief for corporations and households to spur spending and investment. Annually, headline and core HICP, which excludes volatile items like food, energy, alcohol, and tobacco, are estimated to have decelerated to 2.3% and 2.8%, respectively.
Before the Eurozone inflation data, investors will focus on the preliminary Eurozone Q2 Gross Domestic Product and inflation data of Germany and Spain, which will be published on Tuesday.
US Dollar Strength and Federal Reserve’s Decision
The US dollar is rising, with investors focusing on the Federal Reserve’s interest rate decision. The DXY Dollar Index, which tracks the greenback’s value against six major currencies, jumped to near 104.50.
The Fed is expected to leave interest rates unchanged in the range of 5.25-5.50%. Therefore, investors will keenly focus on the monetary policy statement and Fed Chair Jerome Powell’s press conference to get fresh cues about rate cuts.
Market experts see the Fed communicating openly about rate cuts in the September meeting amid significant progress in inflation declining towards the bank’s target of 2% and rising risks to the labor market. Fears of inflation remaining persistent have waned as input prices have decelerated significantly in the last quarter.
Flash US Q2 GDP report showed that the Price Index decelerated at a faster pace to 2.3% from the estimates of 2.6% and the prior release of 3.1%. Also, sticky US core Personal Consumption Expenditures Price Index (PCE) data for June failed to dash expectations of Fed rate cuts in September.
Monthly core PCE inflation grew at a higher pace of 0.2% from expectations and the prior release of 0.1%, with annual figures growing steadily by 2.6%. This week, investors will also focus on a slew of economic data such as JOLTS Job Openings for June, ADP Employment Change, ISM Manufacturing Purchasing Managers Index (PMI), and Nonfarm Payrolls data for July.
