EUR/USD: Euro Under Pressure, US Inflation Next
The euro (EUR/USD) is lower for a fourth straight trading day and has declined 0.10% on the day, trading at 1.0612 at the time of writing. Earlier today, the euro dropped below the 1.06 line for the first time since November 2023.
US CPI Expected to Rise to 2.6%
The US releases the October inflation report later today. Headline CPI is expected to rise to 2.6% y/y, up from 2.4% in September. The monthly rate is projected to remain at 0.2%. The core rate is also expected to stay unchanged from September, at 3.3% y/y and 0.3% m/m.
If headline inflation moves higher as expected, the markets could respond by trimming the probability of a rate cut at the Dec. 18 meeting. The current market pricing for a 25-basis point cut is 58%, down from 68% a day ago. This means that investors are not sold on a rate cut at the final meeting of the year. The US economy is in good shape but underlying inflation remains above the 2% target and the labor market has been cooling. Today’s inflation report could be a key factor in the rate decision at the December meeting.
Will ECB Lower Rates in December?
The European Central Bank meets on Dec. 12 and there are differing opinions among Governing Council members as to the timing of another rate cut. Inflation has been falling, but it the pace fast enough to warrant a rate cut at the December meeting? Some voices have been calling for a jumbo 50-basis point cut in December, while more dovish members want to wait until early next year.
The most recent development which the ECB must contend with is the Trump election win, which could mean US tariffs on European goods. Governing Council member Robert Holzmann said on Tuesday that if Trump enacted tariffs, the US dollar would rise against the euro and that would put upward inflation on eurozone inflation and make it more difficult for the ECB to achieve its 2% target.
EUR/USD Technical
- EUR/USD is testing resistance at 1.0627. Above, there is resistance at 1.0659
- 1.0591 is the next line of support, which has held since November 2023. Below, there is support at 1.0559
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