Inflation Woes Hit Euro, US Dollar Climbs Ahead of Employment Data

The Federal Reserve will be happy to see that the oil price has seen its most significant decline in almost a month. The price of crude oil dropped sharply over the past 24 hours, with a decline measuring 5.16%. The US Dollar, which is also partly correlated with Oil, experienced mixed price movements with impulse waves in both directions. However, today's Dollar is experiencing a strong decline and is nearly crossing onto new lows with some pairs. 

This week, volatility will remain high due to plenty of economic events from both sides of the Atlantic. For Europe, economists will concentrate on inflation across the Eurozone, whereas the US will focus on employment. The US employment data is expected to be weaker than the previous months but soft enough to support a pause in the monetary policy. Goldman Sachs this morning confirms they will conduct a third round of job cuts due to a persistent “dealmaking drought”.

EUR/USD - Inflation Woes Hit the Euro

As mentioned above, the EUR/USD exchange rate experienced impulse waves in both directions. The exchange rate rose to a new weekly high but quickly lost momentum as the asset rose to the previous resistance level. However, this morning's exchange rate is moving firmly in favour of the US Dollar, which has regained ground from yesterday within the Asian session alone. The US Dollar is now attempting to push the price onto a 10-week low. 

EUR/USD 1-Hour Chart on May 31st

The US Dollar Index, this morning, has increased to 104.35, measuring a 0.19% rise. The Dollar is increasing in value against the whole currency market except the Japanese Yen. Conversely, the Euro is experiencing a decline against the entire currency market and seems to be struggling for a third consecutive day. The Euro’s decline has partially been due to lower inflation data than analysts expected.

The Dollar is being supported by the Consumer Confidence data from yesterday, which was significantly higher than investors were expecting. Additionally, institutions seem to opt for cash and safer assets as the debt ceiling deal goes to Congress. The risk of an adverse outcome remains. However, most analysts believe the most likely outcome will be positive. In addition to this, the latest reports advise the possibility of another rate hike may be as high as 63%. However, the probability of a 0.25% hike may change depending on this week’s employment data.

The much anticipated German inflation data will mainly influence today's exchange rate. If the monthly German Consumer Price Index reading is lower than 0.2%, the Euro may again come under immense pressure. In addition, Euro traders will monitor President Lagarde’s speech, likely to comment on the recent inflation data. The US Dollar, on the other hand, will mainly be driven by today’s JOLTS Job Openings. 

Crude Oil

As mentioned above, the price of Crude Oil saw its most significant decline in recent weeks and is now trading below $70 per barrel. The price has been under pressure from more than one negative factor. The first is the higher possibility of another interest hike in the US and the UK, which is likely to further pressure economic activities and the need for fuel. In addition, investors are also concerned by the low economic growth in China, the world’s largest Crude Oil importer. 

This morning, the Chinese Purchasing Managers’ Index declined to 48.8, in contrast to the climb markets were expecting. Additionally, the Services PMI remains above the critical 50.00 level but reads lower than in previous months. The low economic growth in China is weighing on sentiment, and the PMI reports indicate this is not likely to change. As a result, the world’s largest importer may experience a lesser need for the commodity. In addition to this, we can also see that the PMI data is affecting sentiment in global indices, which are all in the red this morning. 

Crude Oil 8-Hour Chart on May 31st 

At the end of the week, investors expect a meeting between OPEC+ members to discuss the possibility of further production cuts. However, specific decisions or agreements have yet to be expected.  Economists are currently advising the asset is only close to its intrinsic value if we experience a change in supply or economic conditions.

Summary:

• The US Dollar Index, this morning, has increased to 104.35, measuring a 0.19% rise. The Dollar is currently only experiencing declines against the Japanese Yen. 
• The Euro’s decline has resulted from lower inflation data than analysts expected. However, investors will focus on Germany’s inflation data, which will be the strongest price driver. 
• If the German inflation reading is lower than 0.2%, the Euro may again come under immense pressure.
• The price of crude oil dropped sharply over the past 24 hours, with a decline measuring 5.16%. The potential rate hikes and poor Chinese data trigger the decline.