![]() The EUR/USD held above the $1.06342 support level. Upbeat economic indicators would leave the Fed ‘on watch’ and leave monetary policy divergence tilted toward the dollar. However, weaker labor market figures and a service sector contraction could impact hopes of a US economic soft-landing. Short Term ForecastĮconomic divergence favors the dollar. A spike in jobless claims and a contraction across the services sector could reignite fear of a hard landing. However, initial jobless claims on Thursday and private sector PMIs on Friday need consideration. The key drivers for the week will be the FOMC interest rate decision, FOMC economic projections, and the Fed press conference. Notably, the US economy expanded by 2.1% in the second quarter, and the Fed left interest rates at 5.5% compared with a projected Fed Funds Rate of 5.6%. The US unemployment rate is 3.8%, with Core PCE Inflation at 4.2%. In June, the Fed projected an unemployment rate of 4.1%, growth of 1.0%, and Core PCE inflation of 3.9% for 2023.įOMC members will likely consider the current macroeconomic environment. Investors need to consider revisions to GDP, inflation and employment forecasts, and projections for the Federal Funds Rate. However, the FOMC economic projections will draw interest. A hawkish Fed pause would leave rate hikes on the table. The US macroeconomic environment appears to be in a far better position. On Thursday, the EUR/USD responded to a dovish ECB rate hike. Dire economic indicators could kickstart the debate on when the ECB would begin considering rate cuts. The EUR/USD would likely suffer at the prospect of a sustained economic slowdown.īeyond the numbers, investors should monitor the ECB calendar for commentary throughout the week. A deeper contraction across the euro area would raise the prospects of a prolonged Eurozone economic recession.Įconomists forecast the Eurozone services PMI to fall from 47.9 to 47.4 in September. However, the interest rate and inflation environment have impacted consumer spending power, directly affecting private consumption and the euro area economy. The services sector has been the key to the Euro Area economy. On Friday, preliminary private sector PMI numbers for France, Germany, and the Eurozone will give investors a clearer picture of the euro area economy. Cost cutting weakens the labor market, affecting consumer spending and reducing demand-driven inflation. To maintain these margins, firms may cut costs, including labor. During economic stress, businesses reduce contract prices to secure new contracts, resulting in thinner profit margins. Increased competition leads to falling producer prices. While the markets have resigned to a German recession, it is hard to predict the severity of a slowdown. A sharper fall in producer prices would signal an even weaker demand environment. On Wednesday, German producer prices also need consideration. However, central banks got inflation wrong the first time around and could have moved too aggressively to tame inflation or underestimated the stickiness. Considering the macroeconomic environment, it looks like a safe bet. The markets are betting no further ECB rate hikes. Upward revisions to preliminary Eurozone inflation numbers would provide EUR/USD support on Tuesday.
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