EURUSD Fundamental Analysis – 15-August-2024

The euro climbed above the $1.096 (EUR/USD) mark, reaching its highest since early January. After releasing new inflation data, a weaker US dollar largely drove this surge. The drop in the dollar reflects growing market sentiment that the US Federal Reserve may soon ease up on interest rates.

US Inflation Slows, Fueling Rate Cut Expectations

In July, the US inflation rate slowed to 2.9%, reinforcing the belief that the Federal Reserve might reduce interest rates as soon as September. This is a key point because the inflation rate fell slightly below June’s figure and the 3% forecast made by economists.

Notably, this was the smallest annual increase in consumer prices since March 2021, highlighting a positive trend toward stabilizing inflation.

European Central Bank Outlook: Investor Expectations Shift

On the other side of the Atlantic, European investors have modestly raised their bets on the European Central Bank (ECB) implementing two rate cuts by mid-October. However, there’s a growing sense of caution, as recent economic indicators paint a mixed picture.

Weakening Confidence and Industry Slowdown in Europe

Despite some positive signs, there are concerns about the Eurozone economy. Recent reports show a sharp decline in investor confidence and an unexpected drop in industrial production. These developments hint at underlying economic challenges that could influence future ECB policy decisions.

• Also read: USD/MXN Analysis – 15-August-2024

Eurozone Economic Growth Holds Steady in Q2

Regarding overall growth, the Eurozone’s GDP expanded by 0.3% in the year’s second quarter. This figure remains unchanged from the first quarter and aligns with earlier estimates. While this steady growth is reassuring, it underscores the delicate balance Europe’s economy is currently navigating amid shifting global dynamics.

About The Author