EUR/USD is flat in the Wednesday session. Currently, the pair is trading at 1.1317, down 0.08% on the day. On the release front, there are no major eurozone or German events. In the U.S., well get a look at consumer inflation for May. CPI is expected to dip to 0.1%, while core CPI is projected to improve to 0.2%. On Thursday, Germany releases Final CPI and the eurozone posts industrial production. The U.S. will release unemployment claims.
The Federal Reserve shook up the currency markets last week, as the comments from Fed chair Jerome Powell and FOMC member James Bullard hinted at a rate cut later in the year. Since raising rates in December, the Fed has been neutral with regard to the direction of the next rate move, but rising trade tensions have raised fears of a slowdown in the U.S. economy. This has prompted the Fed to reconsider a rate cut later this year. The CME Group has projected a 66% likelihood for a rate cut at the July meeting, up sharply from a month ago, when the odds of a July cut were just 16%. Fed officials will be keeping a close eye on the May CPI numbers – if inflation remains at very low levels, as expected, there will be more pressure on the Fed to lower rates in order to boost economic activity and inflation.
The ECB is also in dovish mode, which is no surprise, given the economic slowdown which has gripped the eurozone. Germany, the locomotive of the bloc, is also grappling with weaker economic conditions. The manufacturing sectors in Germany and the eurozone continue to contract, as a weak global economy has led to reduced appetite for European exports. This has hurt key sectors such as the German auto industry. If the bitter U.S-China trade row continues, the slowdown in the eurozone could worsen.
