- EUR/USD is reeling to hold above 1.0300, preparing to end the week with gains of just 0.21%.
- US consumer sentiment rises to a three-month high, while inflation expectations remain mixed.
- Fed’s Daly: Far from declaring victory, he supports a 50 basis point hike as a base for the September FOMC.
- EU industrial production surprised to the upside, but recession still looms.
The EUR/USD failed to hold on to two-day gains, falls from five-month highs, back below 1.0300 amid positive market sentiment, after a week in which US inflation reports were down. indicate that prices are cooling, so the Fed could take a more “aggressive” approach to tightening.
EUR/USD is trading at 1.0255 after reaching a daily high of 1.0321, but the overall strength of the US dollar saw the shared currency fall below the 1.03000 figure, towards a fresh two-day low at 1.0238.
EUR/USD falls despite positive data from the EU after improving consumer sentiment in the US.
Meanwhile, investor sentiment is positive, underpinned by consumer sentiment from the University of Michigan. August’s reading beat estimates, coming in at 55.1, above the 52.5 predicted by the street. On the other hand, consumer inflation expectations one year ahead fell from 5.2% to 5%, while five years ahead rose above 3% from 2.9%.
Apart from the macroeconomic data, the new Fed statements keep the hawks in command. On Thursday, Mary Daly of the San Francisco Fed said that inflation remains high and that she favors a 50 basis point rate hike. However, she does not rule out a rate hike of 75, but it would depend on the data. On Friday, Thomas Barkin of the Richmond Fed said the inflation data is welcome, but he wants to see a sustained period of controlled inflation. Barkin added that he is undecided about the September FOMC monetary policy meeting.
The US Dollar Index is making up some ground on the day, up 0.60% to 105.723 heading into the weekend.
Across the pond, the eurozone released industrial production which was better than expected at 0.7%m/m vs 0.2%, with the May reading revised higher to 2.1%. The figures on an annual basis rose 2.4%, against the 1.0% expected. However, the current energy crisis in the EU and the risks of fragmentation that persist mean that the economic outlook for the EU points to a recession.
In addition, the Rhine River in Germany fell below its critical level, about 40 cm, in order to interrupt deliveries of raw materials, mainly coal. Contargo, a German container operator, said it would suspend large-scale operations in the middle reaches of the Rhine, according to Reuters.
BBH analysts reported that ECB tightening expectations suggest a 50 basis point hike by September 8, while the swap market is pricing in 150 basis points for the next 12 months, aiming to that the deposit rate is around 1.5%, from 1.25%.
what to watch
The EU calendar will include the German Zew for August, EU employment and GDP data, along with July HICP and the EU current account. Across the pond, New York Fed manufacturing data, housing data, industrial production and retail sales will be released in the United States.
EUR/USD Key Technical Levels
Source: Fx Street
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