EURUSD is exhibiting a weak performance in Thursday’s European trading after diving below the key support of 1.0950 on Wednesday. The major currency pair remains under pressure as the Dollar clings on to gains ahead of the US Consumer Price Index (CPI) data for September.
The DXY Dollar Index, which tracks the greenback’s value against six major currencies, trades close to a fresh seven-week high near 103.00.
Economists expect the annual core CPI – which excludes volatile food and energy prices – to have grown steadily by 3.2%. Annual headline CPI is expected to have decelerated to 2.3% from 2.5% in August.
The month-on-month headline and core CPI are expected to have grown at a slower pace of 0.1% and 0.2%, respectively.
The impact of the inflation data on market expectations for the interest rate outlook is expected to be moderate, as recent commentaries from Federal Reserve officials have indicated that they are confident about price pressures remaining on track to return sustainably to the bank’s target of 2%.
Fed policymakers are highly focused on reviving labour demand due to which they unanimously voted for a larger-than-usual rate cut size of 50 basis points (bps) in the September policy meeting.
However, the scenario of blowout inflation figures could renew risks of inflation remaining persistent and negatively influence market expectations of two more interest rates in the remaining year.
The EURUSD remains vulnerable near a fresh eight-week low of 1.0940 due to multiple headwinds.
Apart from a firm US Dollar, the Euro’s underperformance against its major peers due to escalating ECB dovish bets has also kept the shared currency pair on the backfoot.
A majority of European Central Bank officials have argued in favour of reducing interest rates further as risks of inflation remaining persistent in the Eurozone have significantly eased after the September flash annual Harmonized Index of Consumer Prices (HICP) report decelerated to 1.8%, the lowest since April 2021.
Also, growing risks to economic growth have allowed traders to price in a 25-bps interest rate cut in each of the remaining two meetings this year.
The German economic ministry said on Wednesday that the economy is expected to end the year with a 0.2% decline in the overall output. Earlier, the ministry projected a 0.3% growth, but was forced to revise forecasts due to structural problems and geopolitical issues.
Being the largest nation in the Eurozone, the impact of a de-growth in the German economy would be high on the Euro. On the economic front, annual German Retail Sales, a key measure of consumer spending that prompts inflationary pressures, expanded at a robust pace of 2.1% in August after contracting by 1.6% in July.
EURUSD chart by TradingView
(Source: OANDA)