EUR/USD Tumbles as Dollar Strength Surpasses Eurozone Inflation

The EUR/USD pair continues to feel pressure as interest rate differentials between the US and Europe support the dollar. After falling from the 1.1600-1.1640 area in early September, the currency pair is currently trading around $1.1493.

The main driver of this trend has been a simultaneous repricing of interest-rate expectations on both sides of the Atlantic. The EUR/USD price remains under pressure as long as it fails to regain the 1.1530-1.1560 area on a sustained basis, with risks of a break below 1.1460 and a decline toward 1.1420-1.1400 remaining high.

The European Central Bank (ECB) raised all three key interest rates by 25 basis points on September 10, bringing the deposit rate to 2.50%. The ECB has not pre-committed to a further rate path, but after the acceleration in Harmonized Index of Consumer Prices (HICP), the likelihood of a rapid return to monetary easing has decreased noticeably.

On the other hand, US data currently looks more supportive for the dollar. US CPI rose by 0.4% month over month and 3.4% year over year in August, while core inflation came in at 0.3% month over month and 2.4% year over year.