EUR/USD rises amid Greenback weakness as PPI paves way for Fed tapering

VaselineSeptember 12, 2024

0 4 minutes read

EUR/USD rises amid Greenback weakness as PPI paves way for Fed tapering

EUR/USD bounced back on Thursday following a weakening greenback.
US PPI inflation data failed to trigger any major moves but remained steady.
The Fed-centric market tilt continues unabated as anticipation for rate cuts continues.

EUR/USD found higher ground on Thursday, climbing back above the 1.1050 level as markets lean towards a risk-on stance after US Producer Price Index (PPI) numbers kept market hopes up for an opening salvo from the Federal Reserve (Fed) next week. . Markets are confident that the Fed will start a rate-cutting cycle on September 16.

Forex Today: A stalemate is likely ahead of the FOMC meeting

EU data remains flat on Friday and euro traders will take a breather after the European Central Bank (ECB) cut its main benchmark rate to 3.65% from 4.25% on Thursday. The University of Michigan Consumer Sentiment Index will give US traders one last look at consumer sentiment about the overall US economy before the trading week ends.

The US PPI rose 0.2% in August and the core PPI rose 0.3% on the month. The headline PPI was forecast to rise to 0.1% from the previous 0.0%, while the core PPI was expected to rise to 0.2% from the -0.2% contraction in July. Despite the near-term pick-up, annualized PPI inflation figures were much more attractive to investors, with annual headline PPI easing to 1.7% from a revised 2.1% in the previous period and ticking below the expected level of 1 .8%. Core annualized PPI also beat the expected print, holding steady at 2.4% versus the expected 2.5% increase.

US initial jobless claims also rose slightly more in the week ended September 6, rising to an expected 230K from a revised 228K the previous week.

With PPI inflation remaining subdued and jobless claims firmly in warm territory, little lies in the way of a first interest rate cut from the Federal Reserve (Fed) on September 18. to kick off the late-start rate cut cycle in 2024. According to CME’s FedWatch tool, rate markets are pricing in a more than 80% chance of a quarter-point Fed cut next week, with 20% still tipping for a cut double initials of 50 bps. Rate traders also overwhelmingly expect the Fed to deliver four cuts in total, with the December rate call expected to land between 425 and 450 bps.

Economic indicator

Producer price index excluding food and energy (annual)

The Food and Energy Producer Price Index, published by the Bureau of Labor Statistics, Department of Labor, measures average price changes in US primary markets by commodity producers in all processing states. Those volatile products such as food and energy are excluded to achieve an accurate calculation. Generally, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or bearish).

EUR/USD Price Forecast

Thursday’s rally comes as welcome relief for EUR/USD bulls as the pair recovers from a mid-week crash towards the 1.1000 hand. Despite a short-term pullback from the 13-month highs set in late August near 1.1200, short pressure is facing significant challenges from Fiber bidders and the pair is refusing to retrace to the exponential moving average (EMA) of 50 days at 1.0984.

EUR/USD daily chart

Frequently asked questions about the euro

Euro is the currency for the 20 countries of the European Union that belong to the Eurozone. It is the second most heavily traded currency in the world after the US dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion per day. EUR/USD is the most traded currency pair in the world, representing an estimated discount of 30% on all trades, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

The European Central Bank (ECB) in Frankfurt, Germany is the reserve bank for the euro area. The ECB sets interest rates and manages monetary policy. The main mandate of the ECB is to maintain price stability, which means either controlling inflation or stimulating growth. Its main tool is raising or lowering interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the euro and vice versa. The Governing Council of the ECB takes monetary policy decisions at meetings held eight times a year. Decisions are taken by the heads of the national banks of the euro area and six permanent members, including the president of the ECB, Christine Lagarde.

Eurozone inflation data, as measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric element for the euro. If inflation rises more than expected, especially if it exceeds the ECB’s 2% target, it forces the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its peers will typically benefit the euro as it makes the region more attractive as a place for global investors to park their money.

Data releases measure the health of the economy and can have an impact on the euro. Indicators such as GDP, manufacturing and services PMI, employment and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the euro. Not only does it attract more foreign investment, it may encourage the ECB to raise interest rates, which will directly strengthen the euro. Otherwise, if the economic data is weak, the euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are particularly significant as they account for 75% of the euro area economy.

Another important piece of information for the euro is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports in a given period. If a country produces highly sought-after exports, then its currency will only gain in value from the additional demand created by foreign buyers wanting to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.

VaselineSeptember 12, 2024

0 4 minutes read