EUR/USD regains traction above 1.0500 ahead of German inflation data
EUR/USD is trading above 1.0500, extending a tepid recovery from eight-month lows of 1.0488 in European trading on Thursday. Broad US Dollar correction supports the pair, despite Eurozone economic woes. German inflation data eyed.
Inflation in Germany, as measured by the change in the Consumer Price Index (CPI), is forecast to decline to 4.6% on a yearly basis in September from 6.1% in August. Earlier in the day, regional data from Germany confirmed softening price pressures. Annual CPI inflation in Brandenburg fell to 5.6% from 7.1%, while the same figure dropped to 4.7% from 6% in Hesse.
A softer-than-forecast CPI print in Germany could make it difficult for the Euro to stay resilient against its rivals. On the other hand, a stronger-than-expected reading, which is not very likely, could help EUR/USD edge higher.
The US economic docket will feature the final revision to the second-quarter Gross Domestic Product (GDP) growth and the weekly Initial Jobless Claims data. Market participants, however, could ignore these data and stay focused on political developments. In case Republicans and Democrats come to terms to avoid a government shutdown ahead of the October 1 deadline, risk flows could dominate financial markets and cause the USD to weaken sharply.
EUR/USD dropped below 1.0500 on Wednesday and came within a touching distance of the 2023-low of 1.0483. Early Thursday, the pair seems to have stabilized above 1.0500, with investors gearing up for key macroeconomic data releases.
The US Treasury bond sell-off continued mid-week as the lack of progress in US budget negotiations caused investors to position themselves for the potential negative impact of a government shutdown on the US credit rating. "I don't see the support in the House" for the funding bill presented by the Senate, Republican House Speaker Kevin McCarthy said Wednesday. The next procedural vote on the bill is expected to take place on Thursday.
As a result, US T-bond yields continued to push higher and the US Dollar shined as the go-to safe-haven asset, forcing EUR/USD to stay on the back foot.