EUR/USD: 14:18:10 (UTC) 8/2/23 (Fundamental Economic Analysis)

2 авг. 2023 г.

As investors assessed the outlook for monetary policy and recent economic data, the euro nudged up marginally to $1.1 per euro. According to preliminary CPI data, the Eurozone's headline inflation rate dropped to 5.3%, the lowest level since January 2022, while the core inflation rate remained unchanged at 5.5%, still beyond the ECB's target of 2%. The economy also started to recover again and increased at a faster-than-anticipated 0.3% in the second quarter, exceeding estimates of a 0.2% figure.

While a pause, whenever it occurs, in September or later, would not necessarily be definite, ECB President Lagarde reaffirmed during an interview with Le Figaro that there may be a further interest rate hike or perhaps a halt in September. The ECB increased borrowing costs by another 25 basis points in July, and the majority of economists continue to predict that the central bank will hike rates by another quarter-point before year's end. Seasonally adjusted unemployment in the euro area reached a record low of 6.4% in June 2023, remaining steady from May 2023 and falling just short of market expectations of 6.5%. The unemployment rate was higher at 6.7% a year earlier. From a month earlier, there were 62 thousand fewer unemployed people, totaling 10.814 million. In contrast, the youth unemployment rate, which counts those under the age of 25, fell to an all-time low of 13.8% in June 2023, from 14% the month before. The lowest unemployment rate among the biggest economies in the Euro Area was found in Germany (3%), while the highest rates were found in Spain (11.7%), Italy (7.4%), and France (7.1%).

The manufacturing sector of the currency bloc experienced a full year of consecutive contractions as higher borrowing costs from the ECB continued to bite, according to the HCOB Eurozone Manufacturing PMI, which dropped to 42.7 in July 2023 from 43.4 the previous month and represented a three-year low. This result was also in line with its flash estimate. Excluding the initial months of the pandemic, factory production fell significantly over the period, primarily as a result of reductions in the intermediate products sector since cleared backlogs were unable to fully offset the greatest decrease in new orders since 2009. As a result, firms lowered their inventory and cut back on their purchase activity for another month. Meanwhile, bad economic conditions and decreased purchasing reduced delivery times and gave supply chains a break, which resulted in substantially falling input prices and reductions in output charges.

The ECB raised interest rates once again by 25 basis points in July, and most economists still anticipate that the central bank will increase rates once more by a quarter-point before the year is up. For the sixth consecutive month, the Euro Area's industrial confidence indicator fell to -9.4 in July 2023, the lowest level since August 2020 and lower than the -7.5 market consensus. The manufacturers' forecasts for production, their evaluations of the current state of the order books overall, and their assessments of the finished goods inventories all significantly declined. Managers' opinions on changes in previous production and their evaluations of export order books were the most unfavorable of the questions that did not reach the confidence indicator. European Commission as a source

By the conclusion of this quarter, analysts and global macro models for Trading Economics predict that the Euro Dollar Exchange Rate will trade at 1.08. Going ahead, I predict it will trade at 1.04 in a year.