EURUSD edged higher Tuesday amid a mild correction in the Dollar, rising to near the psychological resistance of 1.1000.
The major currency pair recovered mildly as the USD faces a slight correction, with investors shifting focus to the US Consumer Price Index (CPI) data for September, to be published on Thursday.
The inflation data is expected to show that the annual core CPI – which excludes volatile food and energy prices – has grown at a steady pace of 3.2% year-over-year (YoY). The headline inflation is estimated to have decelerated to 2.3% YoY from 2.5% in August.
The impact of the inflation data is expected to be lower on the Federal Reserve’s interest rate outlook as policymakers are more focused on reviving economic growth and consumer spending.
The outlook for the European currency remains fragile as a majority of European Central Bank officials continue to emphasise the need to reduce interest rates further due to a sharp deceleration in Eurozone price pressures and poor economic growth.
In an interview with Table Media, ECB policymaker and Bundesbank President Joachim Nagel said, “I am certainly open to considering whether we could possibly make another interest rate cut.”
Nagel has also agreed with the revision of the Eurozone’s Gross Domestic Product forecast for 2024 to a 0.2% contraction against a prior GDP projection of 0.3% growth.
However, the German Industrial Production for August has come in better than expected. On a monthly basis, output grew at a robust 2.9%, compared to estimates of 0.8% after contracting by 2.4% in July.
Meanwhile, ECB policymaker and Austrian central bank Governor Robert Holzmann advised to proceed with caution on further interest rate cuts as inflation has yet not been defeated, in his comments to the Sueddeutsche Zeitung on Monday.
In September, the Eurozone flash Harmonised Index of Consumer Prices (HICP) decelerated to 1.8% year-on-year.
The outlook for the Dollar remains firm as financial markets expect the Fed to cut rates again in November, but the rate-cut size is expected to be 25 basis points (bps), according to the CME FedWatch tool.
Lately, market speculation for a Fed 50 bps rate cut waned after the US job report for September, which showed that labour demand remained robust and wage growth was stronger than expected.
EURUSD chart byTradingView
(Source: OANDA)
