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Sep 17 - 01:55 PM

EUR/USD - COMMENT-EUR/USD Eyes Aug Lows As Resurgent US Data Gives Fed Advantage

By Randolph Donney  —  Sep 17 - 12:01 PM

EUR/USD gave up earlier gains on Friday, hitting new lows for September, after speculation about a more aggressive ECB inflation view died down, leaving markets focused on resurgent strength in U.S. data and expectations that the Fed can more easily normalize policy than the European Central Bank.

With the Fed meeting next week, markets remained focused on Thursday's stellar U.S. retail sales data and strong New York and Philly Fed surveys this week, even though University of Michigan consumer sentiment was slightly disappointing nW1N2P605E.

The ECB disputed a story earlier on Friday that chief economist Philip Lane revealed in a private meeting with German economists that the ECB expects to hit its 2% inflation goal by 2025, which had contributed to euro strength.

The rekindled dollar strength could allow EUR/USD to retest August's 1.1664 trough nL1N2QJ18C.

Overall, data this week shored up Fed tapering expectations for 2021, boosting Treasury yields in the belly of the curve, where the bulk of issuance and QE exists, and pushing 5-year Bund-Treasury yields spreads and EUR/USD lower.

The FOMC's dot plots should shift toward sooner rate hikes, but taper may wait until the November meeting.

Meanwhile, one-year University of Michigan inflation expectations rose, reinforcing inflation expectations reported by the New York Fed nW1N2P605E.

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Source:
Refinitiv IFR Research/Market Commentary

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