The EURUSD exchange rate unwind continues after US consumer prices were higher after the Fed’s recent rate cut.
EURUSD – Daily Chart
The price of EURUSD has slipped through the 1.10 level and has continued to probe lower. Support at the 1.09075 is the barrier to the lower 1.08 level.
The US dollar rose after US September consumer prices rose more than expected. There were also signs of a weakening labour market with jobless claims rising. Unemployment claims rose to a 14-month high, but the data may be skewed due to Hurricane Helene, which caused a surge in claims in North Carolina and Florida. That could be worsened after the latest Milton Hurricane.
However, there were some dovish comments from New York Fed President Williams who said, “Looking ahead, based on my current forecast for the economy, I expect that it will be appropriate to continue the process of moving the stance of monetary policy to a more neutral setting over time”.
That may be related to the high level of interest rates that were reached, but investors are pulling back expectations on rate cuts after the latest data.
September CPI eased to 2.4% y/y from 2.5% y/y in August, stronger than expectations of 2.3% y/y. The CPI ex-food and energy number unexpectedly strengthened to 3.3% y/y from 3.2% y/y in August.
The weekly initial unemployment claims number increased by 33,000 to a 14-month high of 258,000, which was weaker than expectations of 230,000.
Middle East tensions also support the US dollar with Israel waging a ground and air offensive in Lebanon. The markets are also awaiting Israel’s response to last Tuesday’s missile attack from Iran.
A further negative for the euro was the continued weakness in the German economy, which is expected to decline for a second-straight year. Europe’s largest economy is expected to contract by 0.2% in 2024, the economy ministry said, making it the only member of the Group of Seven major economies to post shrinking output.
The EURUSD extended too far and the reality of a weaker European economy and similar rate path to the US is playing out in the exchange rate, alongside safe haven flows.
