EURUSD shifted to the sidelines, with the US core PCE Price Index for June in focus.
EURUSD maintains important support at 1.0825 in Friday’s European session, despite market concerns over the Euro’s outlook due to several headwinds. The Eurozone’s economic prospects have suffered greatly as its largest country goes through a difficult period. Flash The German Hamburg Commercial Bank (HCOB) Composite Purchasing Managers Index (PMI) fell in July due to a drop in private-sector business activity. The PMI data came in lower at 48.7 than the previous report of 50.4.
Dr. Cyrus de la Rubia, Chief Economist of HCOB, commented on the flash PMI statistics, saying, “This appears to be a severe concern. Germany’s economy slid back into contraction, led down by a sharp and dramatic drop in manufacturing production. The prospect of this sector benefiting from a better global economic climate appears to be fading. With the composite PMI currently below 50, our GDP Nowcast projects that economic activity will fall by 0.4% in the third quarter compared to the second. While it is still early days and many data points remain to be collected, the second half of the year is off to a slow start.”
European Central Bank (ECB) also dragged down the Euro.
Meanwhile, increased anticipation of two additional rate cuts by the European Central Bank (ECB) also dragged down the Euro. A few ECB policymakers believe that firm speculation about two additional rate reduction is justified. ECB policymakers’ confidence has grown amid forecasts that inflation will return to the goal rate of 2% by 2025. Additionally, rate decreases required for the economy’s recovery. German Finance Minister Christian Lindner’s announcement of 30 billion euros in tax relief for firms and people on Wednesday reflected the government’s concerns about a weak demand environment.
The biggest trigger for the Euro in the coming weeks will be preliminary Eurozone Harmonized Index of Consumer Prices (HICP) data for July, which is due next week. The inflation report will provide fresh clues as to when the ECB may decrease interest rates again. Traders expect the ECB to resume its policy-easing cycle in September.
Daily Market movers: EURUSD continues sideways, as the Euro’s outlook is uncertain.
In Friday’s European session, EURUSD held above its two-week low of 1.0825. The major currency pair is trading in a tight range. With investors waiting for the United States (US) core Personal Consumption Expenditures price index (PCE) data for June. Which will be released at 12:30 GMT.
Economists predict underlying inflation to fall to 2.5% year on year in June, down from 2.6% in the previous publication, with the monthly figure slowly rising by 0.1%. The inflation report will have a substantial impact on market expectations for Federal Reserve (Fed) rate cuts this year. Financial market participants now see speculation for interest rate decreases September is certain. Softer-than-expected inflation data would boost expectations for September rate cuts, whereas stubborn data would dampen them.
Meanwhile, the US Dollar is underperforming as investors remain cautious, knowing that underlying inflation will have a substantial impact on the Fed’s interest rate forecast in its monetary policy decision on Wednesday. In its July 31 meeting, the Fed projected to keep its main borrowing rates steady, ranging from 5.25% to 5.5%.
