EUR/USD drops on faster US annual PPI growth
|- EUR/USD faces pressure near 1.0950 as the US PPI came in hotter-than-expected.
- The Fed is expected to cut interest rates by 25 bps in November.
- The Euro holds strength despite firm ECB dovish bets amid a faster-than-expected decline in Eurozone inflationary pressures.
EUR/USD falls back to near the key support of 1.0930 in Friday's New York session. The major currency drops as the US Dollar (USD) rises after the release of the United States (US) Producer Price Index (PPI) data, which showed that producer inflation accelerated at a faster-than-expected pace in September on year-on-year. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, strives to climb above 103.00.
The report showed that the annual headline PPI inflation decelerated at a slower-than-expected pace to 1.8% from 1.9% in August, upwardly revised from 1.7%. Economists expected the headline producer inflation to have grown by 1.6%. In the same period, the core PPI – which strips off volatile food and energy prices – rose by 2.8%, faster than estimates of 2.7% and the former release of 2.6%, upwardly revised from 2.4%. The monthly headline PPI remained flat, while the core figure grew expectedly by 0.2%.
Hotter-than-expected US producer inflation after stubborn inflation data has renewed risks of inflation remaining persistent. However, it is unlikely to weigh on market expectations for the Federal Reserve (Fed) to cut interest rates in November by 25 basis points (bps), according to the CME FedWatch tool.
On the contrary, Atlanta Federal Reserve (Fed) Bank President Raphael Bostic has brought the option of leaving interest rates unchanged at 4.75%-5.00% in November on the table.
The comments from Bostic in an interview with the Wall Street Journal on Thursday indicated that he is comfortable with skipping the interest rate cut next month. Bostic said, “This choppiness to me is along the lines of maybe we should take a pause in November and I'm definitely open to that.” His comments came after the release of the US Consumer Price Index (CPI) report, which showed that inflationary pressures rose at a faster-than-expected pace in September.
Daily digest market movers: EUR/USD falls while Euro outperforms against other peers
- EUR/USD slips to near1.0930 in North American trading hours. Market participants have underpinned the US Dollar against the Euro (EUR). However, the Euro performs strongly against other major peers despite market participants expect the European Central Bank (ECB) to cut interest rates further in both monetary policy meetings remaining this year.
- The ECB has already reduced its Deposit Facility Rate by 50 basis points (bps) to 3.5% this year. The central bank is expected to cut them further by 50 bps again in the remaining year. Traders have priced in two rate cuts of 25 bps, one of which will come next week and the second in December.
- ECB dovish bets have been accelerated by a faster-than-expected decline in Eurozone inflationary pressures and growing risks to economic growth. This week, ECB policymaker and Governor of the Greek Central Bank Yannis Stournaras said that price pressures are declining faster than the ECB forecasted in September. Stournaras also backed two more rate cuts in each of the remaining meetings this year, emphasizing the need to reduce them further in 2025.
- Meanwhile, revised estimates for the German Harmonized Index of Consumer Prices (HICP) for September have shown that price pressures remained below the bank’s target of 2% at 1.8%, as shown in flash estimates.
- On the economic front, the growth prospects of the Eurozone are vulnerable as its largest nation, Germany is forecasted to close the year with a decline in output by 0.2%, the German economic ministry said.
Euro PRICE Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.01% | -0.04% | 0.42% | 0.00% | 0.07% | 0.09% | 0.23% | |
| EUR | -0.01% | -0.09% | 0.36% | -0.06% | 0.04% | 0.03% | 0.16% | |
| GBP | 0.04% | 0.09% | 0.45% | 0.03% | 0.14% | 0.12% | 0.27% | |
| JPY | -0.42% | -0.36% | -0.45% | -0.41% | -0.33% | -0.34% | -0.27% | |
| CAD | -0.01% | 0.06% | -0.03% | 0.41% | 0.09% | 0.08% | 0.23% | |
| AUD | -0.07% | -0.04% | -0.14% | 0.33% | -0.09% | -0.03% | 0.11% | |
| NZD | -0.09% | -0.03% | -0.12% | 0.34% | -0.08% | 0.03% | 0.15% | |
| CHF | -0.23% | -0.16% | -0.27% | 0.27% | -0.23% | -0.11% | -0.15% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
Technical Analysis: EUR/USD aims to hold key 200-day EMA
EUR/USD finds temporary support near the 200-day Exponential Moving Average (EMA) around 1.0900. The near-term outlook of the pair remains uncertain as the 20- and 50-day EMAs are on course to deliver a bear cross near 1.1020.
The shared currency pair weakened after delivering a breakdown of a Double Top chart pattern formation on a daily timeframe. The above-mentioned chart pattern was triggered after the shared currency pair broke below the September 11 low of 1.1000.
The 14-day Relative Strength Index (RSI) settles inside the bearish range of 20.00-40.00, suggesting more weakness ahead.
Looking down, the pair is expected to find support near the round-level support of 1.0800 if it decisively breaks below the 200-day EMA around 1.0900. On the upside, the September 11 low of 1.1000 and the 20-day EMA at 1.1090 will be major resistance zones.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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