Inflation Rises, Euro Strengthens
The EUR/USD pair strengthened during Wednesday's trading (August 19), hovering around the 1.1600 level during the European session. This appreciation followed support from Eurozone inflation data, which remains above the European Central Bank's target.
Annual Eurozone inflation, based on the Harmonized Index of Consumer Prices, rose to 2.9% in July from 2.8% in June, aligning with initial estimates. Meanwhile, core inflation—excluding food and energy components—also increased to 2.5% from 2.4%, indicating that underlying price pressures remain robust.
These conditions reinforce the view that the ECB needs to maintain a hawkish stance. ING identifies rising energy costs as a primary factor keeping inflation pressure high. ECB Chief Economist Philip Lane has also warned that Eurozone inflation could hover around 3% throughout the year and remain elevated into next year.
El Niño risks are also a concern, as they could drive up global food prices and add to inflationary pressure. The combination of high energy prices and the risk of rising food costs has made the market increasingly cautious regarding the possibility that the ECB might keep interest rates high or even tighten policy further.
Regarding the US dollar, EUR/USD has also found support from waning expectations of a Federal Reserve rate hike in September. Weak US retail sales data, a contraction in employment, and relatively contained inflation have caused the probability of a Fed rate hike to drop to approximately 32.8%, down from 51.2% a month earlier. Market focus now shifts to the July FOMC minutes for further clues regarding the Fed's policy direction.
Newsmaker Analysis: EUR/USD is currently supported by two simultaneous factors: Eurozone inflation keeping the ECB hawkish, and diminishing expectations of a Fed rate hike weighing on the US dollar. As long as this sentiment persists, the Euro has the potential to maintain its upward momentum around the 1.1600 level. However, a more hawkish-than-expected tone in the FOMC minutes could strengthen the dollar again and cap gains for EUR/USD. (arl)
Source: Newsmaker.id
