EUR/USD Rate Eyes August High Ahead of US Retail Sales Report

Euro Rate Talking Points

EUR/USD clears September high (1.0198) following larger than expected US consumer price index (CPI) slowdown as exchange rate on track to test the high from August (1.0369) ahead of the US retail sales report. growing speculation for a smaller Federal Reserve rate hike in December.

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Fundamental forecasts for the euro: Neutral

EUR/USD rallies to a new monthly high (1.0326) as the greenback weakens against all of its major counterparts, and the exchange rate may continue to appreciate over the next few days as that signs of slowing inflation fuel bets for a change in the Fed hike. cycle.

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Source: WEC

According to the CME FedWatch Tool, market participants are pricing in an over 80% chance of a 50bp rate hike on December 14, and it remains to be seen whether the Federal Open Market Committee (FOMC) will adjust its approach in the future. fight against inflation as the central bank undertakes to “take into account the cumulative tightening of monetary policy and the lags with which monetary policy affects economic activity and inflation”.

Until then, the euro could continue to appreciate against its US counterpart as the FOMC braces for “an extended period of below-trend growth and some easing in labor market conditions,” but the US retail sales report could support the greenback as the update is expected to show a recovery in household consumption.

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Retail spending is expected to rise 0.9% in October after remaining flat the previous month, and a positive development could prompt the FOMC to propose another 75bp rate hike at its last meeting for 2022 as chairman. . Jerome Powell recognizes that “data received since our last meeting suggests that the ultimate level of interest rates will be higher than expected”.

That said, speculation of a lower Fed rate hike in December could keep EUR/USD afloat for the next few days, but an upbeat US retail sales report could dampen weaker growth. greenback by increasing the FOMC’s leeway to pursue a very restrictive policy. .

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— Written by David Song, Currency Strategist

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