• Single currency holds above one-week low
• The market awaits strong evidence about European interest rate cuts
• The single currency is on the verge of achieving the largest monthly gain in 2024
The euro rose in the European market on Friday against a basket of major and minor currencies, moving in positive territory against the US dollar, after two days of losses due to inflation data in Spain and Germany, to consolidate above a one-week low ahead of the release of major data in Europe for August.
The single European currency ‘euro’ is on the verge of achieving the largest monthly gain in 2024, based on hopes of narrowing the interest rate gap between Europe and the United States, with the Federal Reserve very close to cutting US interest rates.Price outlook • Euro exchange rate today: The euro rose against the dollar by 0.15% to ($ 1.1091), from the opening price of trading at ($ 1.1077), and recorded a low at ($ 1.1070).
The euro ended Thursday’s trading down 0.4% against the dollar, in the second consecutive daily loss, and recorded a one-week low at $1.1055, with corrections and profit-taking continuing from a 13-month high of $1.1202, and due to inflation data in Spain and Germany.
Inflation in Spain, inflation data released yesterday in Spain, recorded a rise of 2.2% in August from a rise of 2.8% in July, below market expectations of a rise of 2.4%.
Inflation data in Germany showed that the annual total consumer price index recorded a rise of 1.9% in August from a rise of 2.3% in July, below market expectations of a rise of 2.1%.
The data above shows the easing of inflationary pressures on monetary policymakers at the European Central Bank, which led to higher futures for the likelihood of the European Central Bank cutting interest rates by about 25 basis points in September from 45% to 60%.
Later in the day, investors await the release of Europe’s headline inflation data for August, which shows how far inflationary pressures across Europe have hit European monetary policymakers, providing more evidence of further cuts in European interest rates before the end of this year.
By 10:00 GMT, the annual consumer price index in Europe is released, with market expectations pointing to a rise of 2.2% in August from a rise of 2.6% in July, and in core terms expected to rise by 2.8% from a rise of 2.9% the previous month.
Monthly trading over the course of August trading, which officially ends when prices settle today, the single European currency ‘euro’ is up so far by about 2.5% against the US currency ‘dollar’ on the verge of achieving the second consecutive monthly gain, and the largest monthly gain in 2024, specifically since November 2023.
The interest rate gap between Europe and the United States is currently at 125 basis points in favor of US interest rates.With the current prospects around European and US interest rates, the gap is expected to narrow to 50 basis points before the end of the year, which is in favor of the appreciation of the euro exchange rate against the dollar.
If inflation data comes in cooler than currently expected in the market, the odds of a European interest rate cut in September will rise, which will send the euro to a low in at least two weeks against the US dollar.
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