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10.08.202310:23 Analisis Forex & Kajian: Traders await US inflation data

Exchange Rates 10.08.2023 analysis

Some analysts believe that relatively positive US inflation data could support the American currency. Meanwhile, the European currency barely benefited from a weaker dollar. It only regained some ground.

In the middle of the week, the greenback sagged slightly amid negative data from China. According to reports, China's economy slipped into deflation last month. Such a turn of events increased the likelihood of additional stimulus measures from the Chinese authorities and increased demand for risky assets.

Increased risk appetite had a negative impact on the US dollar. It suffered heavy losses but then managed to recoup some ground. Experts believe that a recovery in the greenback is a matter of time. Many analysts are confident that the US dollar index will rise above 102 in the coming weeks. However, in the short term, its bullish run is likely to be limited by the 103 mark.

As for the euro, the dollar's counterpart in the EUR/USD pair, the situation is uncertain. On the one hand, Europe's single currency was partially supported by a weaker dollar. On the other hand, it failed to build an uptrend. Nevertheless, European markets enjoyed a short break after a drop in stock indexes earlier in the week amid the news that the Italian government announced a 40% bank profit tax. Later on, the country's Ministry of Finance softened its position, but such a decision still led to a 3.5% collapse in shares of major European banks.

At the beginning of the week, the euro had little opportunity to stand up to the dollar. According to Commerzbank economists, the euro's chance is still slim, and the prospects for the EUR/USD pair are somewhat dim.

Unlike the situation in the US, the euro area economy is weakening, putting pressure on the common currency. According to analysts, if inflation in the EU rises, the issue of lowering rates in the region will arise again. Experts at Commerzbank believe that inflation remains a priority for the ECB, although the regulator expects a positive trend to remain intact.

A potential driving force behind the euro's rally could be the next batch of macroeconomic statistics from the euro area to be released next week. This primarily concerns Eurozone GDP. Upbeat data may support Europe's single currency.

Preliminary estimates show that the EUR/USD pair will remain range-bound. In early trade on Thursday, the pair traded near 1.0991, trying to get out of the range. Then the pair succeed, with the euro surging against the dollar.

Exchange Rates 10.08.2023 analysis

If economic data does not back up the European currency, and market expectations regarding the policies of the Fed and ECB do not change in favor of the euro this month, the volume of long positions will decrease in September, experts emphasize.

Currently, markets are awaiting US inflation data to be published by the Labor Department on Thursday. Preliminary forecasts indicate that US consumer prices accelerated to 3.3% annually in July from 3% a month ago.

The latest US inflation data will help investors assess the results of the prolonged monetary policy tightening cycle by the Fed and predict the regulator's next steps, based on its 2% inflation target. Notably, at the July meeting, the US central bank raised interest rates by 0.25 percentage points to 5.25%–5.5%. However, most analysts expect the Fed to keep the key rate unchanged in September.

Nevertheless, markets are tense as some Fed officials have recently hinted at a possible loose policy stance. Philadelphia Federal Reserve Bank President Patrick Harker suggested that interest rates were already quite high. Earlier, Raphael Bostic, his colleague from Atlanta, stated the same.

For the time being, there is no common position among policymakers on the future of monetary policy. Nevertheless, most of them admit the possibility of further rate hikes. Against this background, markets are pricing in another 25-basis-point increase in the Fed's key rate at the September meeting.

Larisa Kolesnikova,
Analytical expert of InstaSpot
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