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Strong U.S. Data Squashes Euro

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Following the release of strong U.S. data, the euro took a hit as investors saw the direction of the eurozone economy diverging from that of the U.S.

The common currency traded at $1.3466 at 8:20 GMT on Wednesday, near an eight-month low reached on Tuesday.

On Tuesday, the U.S. Labor Department released data that showed the nation’s inflation is on the rise this year, with the consumer price index up 0.3 percent in June from a month earlier.

The index was 2.1 percent higher than last year’s figure, indicating healthy inflation throughout the U.S. However, the personal consumption expenditures price index was not quite as strong, up only 1.8 percent annually in May. By comparison, eurozone consumer prices have only increased 0.5 percent on the year.

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Both the European Central Bank and the Federal Reserve have set a two percent goal for inflation, but so far, eurozone inflation has been moving in the opposite direction.

Tuesday’s data showed that the U.S. economy was nearly ready to stand on its own, sparking renewed speculation about whether or not the Fed will raise its interest rates sooner than expected. Meanwhile, the ECB is expected to ease further in the months to come as the region’s recovery continues to sputter and stall.

Also weighing on the common currency has been the ongoing tension between the West and Russia. The European Union will likely increase their sanctions against Russia in the wake of a downed Malaysian Airlines passenger jet.

However, with Russia being a main business partner for EU companies, there will likely be a significant economic effect on the region. According to Reuters, between geopolitical tension and a strengthening dollar, some analysts see the euro falling as low as $1.32 this year.

Posted-In: European Central BankNews Eurozone Forex Global Federal Reserve Pre-Market Outlook Markets Best of Benzinga

 

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