The EUR/USD exchange rate wavered on Friday as investors reflected on the final estimate of the US GDP data and a new report on European inflation by the European Central Bank (ECB). It was trading at 1.1680, down by 2% from the year-to-date high.
US PCE inflation data ahead
The EUR/USD pair wavered after a report by the Bureau of Economic Analysis released a strong economic number on Thursday.
This report showed that the economy expanded by 3.8% in the second quarter after contracting by 0.6% in the previous quarter. This growth was higher than what most analysts were expecting.
Another report showed that the number of people filing for initial and continuing jobs claims dropped last week.
The US also reported strong durable goods orders, a day after it reported a 20% surge in new home sales numbers as mortgage rates dropped.
These numbers have pushed some investors to predict that the Federal Reserve will not cut interest rates as aggressively as predicted.
Some Fed officials have warned that the aggressive rate cuts will make the inflation situation worse. These officials include Cleveland’s Beth Hammack, Atlanta’s Raphael Bostic, and New York’s John Williams.
The next important catalyst for the EUR/USD exchange rate will be the upcoming Personal Consumption Expenditure (PCE) inflation report, which will come out later on Friday.
Economists polled by Reuters expect the data to show that the core PCE moved from 0.3% in July to 0.2% in August, translating to an annual figure of 2.7%.
The core PCE figure is expected to come in at 2.9%, which is also higher than bank’s target of 2.0%
Inflation could worsen after Donald Trump announced new tariffs. The US will implement a new 100% tariff on all medicines made by companies not building locations in the United States.
Trump also announced new tariffs on furniture and other items, a move that will worsen the situation in the country.
ECB interest rate cut odds fall
Meanwhile, odds of European Central Bank interest rate cuts fell on Friday after a new report showed that inflation expectations rose this month.
European consumers expect prices to rise 2.8% in the next 12 months, up from 2.6% in the last report in July.
Inflation expectations for the next five years rose to 2.2% this month. Therefore, there is a likelihood that the ECB will not cut interest rates in the near term. In a recent statement, Peter Kazimir, a member of the governing council said:
“We can say with some pride that we’ve achieved our goal. Now we need to stay patient and determined, ready to act when the time comes.”
EUR/USD technical analysis
EURUSD chart | Source: TradingView
The daily timeframe chart shows that the EUR/USD exchange rate has retreated in the past few days. It has moved from a high of 1.1915 earlier this month to 1.1680.
The pair has formed a rising wedge pattern, which is a common bearish reversal sign.
Also, the Relative Strength Index (RSI) and the MACD indicators have all pointed downwards.
Therefore, the pair will likely continue falling as the divergence between the Fed and the ECB continues. If this happens, the next point to watch will be at 1.1393, its lowest level in July this year.
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