Euro Stagflation Risks Mount as Dollar Holds Firm Ahead of Key Data
The EUR/USD pair broke below its summer lows yesterday but has since recovered some ground. However, this morning's economic releases from the eurozone have done little to improve the outlook, with a combination of rising inflation and weakening sentiment reinforcing concerns about stagflation.
French inflation accelerated sharply to 3.0% in September, while Italian consumer inflation surged to 4.2% year-on-year in September. German labour market figures showed unemployment falling by 67,000 in September, but regional inflation readings suggest that German CPI is picking up.
The EUR/USD forecast remains bearish due to the eurozone's increasingly difficult trade-off between containing inflation and supporting an economy already showing signs of strain. The dollar's broader direction remains bullish, supported by yields and a sharp sell-off in longer-dated US Treasuries.