Original article by Anil Panchal, FXStreet.
Title: EUR/USD Struggles for Direction amid Balanced Forces of Robust US Data and Hawkish ECB Stance
The EUR/USD currency pair is currently exhibiting subdued movement within tight trading margins as investor sentiment strives to adjust to a series of strong economic indicators from the United States and a simultaneously hawkish stance from the European Central Bank (ECB). Amid the backdrop of a broadly calm international financial market on Thursday, the pair trades near the 1.0900 level, attempting to find its next directional cue. As economic crosscurrents pull in opposite directions, holders of the EUR/USD are finding few incentives to take aggressive positions.
Overview of Key Market Drivers for EUR/USD:
On one end, the recent strength in US macroeconomic data has bolstered the US dollar and strengthened expectations that the Federal Reserve may delay rate cuts for a longer period than initially anticipated. At the same time, determined and firm comments from ECB policymakers have reminded markets that the eurozone’s monetary authority is still vigilant about inflation, which continues to hover above its desired target. That dual-storey narrative is keeping EUR/USD tethered to a narrow range with neither bulls nor bears managing to gain the upper hand in the short term.
Let’s explore the key elements shaping the outlook for the EUR/USD currency pair:
Strong US Economic Data Reinforces Dollar Stability
The latest round of economic releases from the US has generally come in stronger than expected, demonstrating resilience in the world’s largest economy.
– The advance reading of the US Gross Domestic Product (GDP) for Q2 surpassed anticipations with a 2.4% annualized growth rate, up from the previously expected 1.8%.
– Durable Goods Orders rose by 1.9% in June, notably higher than the forecast of 1.0%, signifying robust manufacturing and industrial activity.
– US Weekly Initial Jobless Claims dropped to 221,000 in the latest week, indicating a tight labor market and continued demand for workers.
– Consumer confidence, reflected in the Conference Board index, climbed to its highest level since July 2021, suggesting a strong mood among American households.
This stream of upbeat economic data has led investors to recalibrate their expectations for upcoming Federal Reserve monetary policy actions.
– Comments from Fed Chairman Jerome Powell after the latest FOMC meeting indicated that the central bank is not in a hurry to cut interest rates.
– Traders are now pricing in the possibility that the Fed may need to delay a rate cut until later in 2024, depending on how inflation evolves in the coming months.
– Fed Funds Futures have decreased their bets on a September rate cut, now seeing less than a 40% chance of a move at that meeting.
Collectively, these developments contribute to prevailing support for the US dollar across the board, while simultaneously curbing immediate upside potential for the EUR/USD pair.
ECB Maintains Hawkish Tone Despite Inflation Easing
On the European front, the ECB recently chose to keep interest rates unchanged, as widely expected in July’s policy meeting. However, the messaging from the central bank and its policymakers has taken a cautious yet hawkish tilt, reinforcing the ECB’s focus on battling inflation.
– Several ECB officials, including President Christine Lagarde, have emphasized that policy will be guided by data and that it is too early to declare victory over inflation.
– Lagarde pointed to persistent wage pressures that could keep services inflation elevated for longer.
– Core inflation, though decelerating, remains above the ECB’s 2% target, which warrants continued vigilance.
– ECB Governing Council members like Joachim Nagel and Isabel Schnabel have suggested that further rate hikes cannot be ruled out if inflation stagnates or rebounds.
The hawkish language, even amid signs of a mild economic slowdown in the eurozone, signals the ECB’s commitment to anchoring expectations and avoiding premature easing. This supportive policy backdrop has helped EUR/USD avoid deeper losses despite US economic resilience.
Eurozone Economic Indicators
Read more on EUR/USD trading.