Skip to content EURUSD Fundamental Analysis – 30-August-2024
On Friday, the Euro hovered around $1.108 (EUR/USD), close to its lowest point in two weeks. This dip is mainly due to the recent inflation data, which has led many to believe that the European Central Bank (ECB) will cut interest rates on September 12.
Policymakers have hinted that such a move is likely, adding more weight to these expectations.
Inflation Hits New Lows Across the Eurozone
In August, inflation across the Eurozone dropped to 2.2%, the lowest since July 2021. This decline was expected, but it still signals a significant easing of price pressures in the region.
Core inflation, which excludes volatile items like food and energy, also dropped to 2.8%, marking its lowest point in four months. This consistent decrease across different inflation measures strongly indicates why the ECB might consider lowering rates.
Germany’s Inflation Slows More Than Expected
Germany, the largest economy in Europe, saw its harmonized inflation rate fall to 2% in August, down from 2.6% in July. This was even lower than the predicted 2.3% and is the lowest rate since March 2021.
The sharper-than-expected drop suggests that the economic pressures in Germany are easing faster than analysts had anticipated.
Spain and Italy Follow Suit with Inflation Easing
Spain also saw its inflation rate decrease, dropping to 2.4% from 2.9% in July. This was below what experts had forecasted, further underscoring the trend of declining inflation across the Eurozone.
Similarly, Italy’s inflation rate eased to 1.3% from 1.6%, matching predictions but contributing to the region’s overall downward trend.
France’s Inflation Slows, But Not as Much as Expected
France’s inflation rate slowed to 2.2% in August, down from 2.7% in July. While this was a reduction, it was slightly above the forecast of 2.1%, indicating that inflationary pressures in France are easing, but not as quickly as in some other Eurozone countries.
What This Means for the Future
The consistent drop in inflation across major Eurozone economies suggests that the ECB may have more room to maneuver when adjusting interest rates. If the ECB does decide to cut rates, it could stimulate economic activity by making borrowing cheaper.
However, it could also lead to a weaker Euro, affecting trade and investment decisions. The coming weeks will be crucial as markets watch for further signals from the ECB and new economic data.
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