Euro Struggles as US Dollar Steadies Amid Inflation Concerns
The EUR/USD pair has consolidated below its two-month high of 1.1614 reached yesterday, as the US Dollar (USD) steadies and weighs on the Euro (EUR). Despite a stronger reading in the Eurozone ZEW Survey, which showed Economic Sentiment improved to 31.4 in August from 23.4, beating market forecasts, the Euro struggles to gain traction.
The four-week average of the ADP Employment Change rose to 9.5K in the week ending August 1 from 8.25K previously, but US Treasury yields are providing some support to the Greenback. The US Dollar Index (DXY) trades around 99.60 after recovering from its two-month low of 99.30 touched on Monday.
Markets now see a 65% probability that the Federal Reserve will leave interest rates unchanged next month, down from earlier expectations for a hike, due to a run of weaker US economic data. However, the uncertainty over the inflation outlook persists, with elevated Oil prices raising the risk that inflation stays above the Fed's 2% target for longer.
ECB Chief Economist Philip Lane expects Eurozone inflation to 'hover around the 3% level for the rest of the year,' and emphasized that 'Eurozone inflation running one percentage point above the ECB's 2% target is a lot.'