EUR/USD Price Prediction – U.S. Dollar Moves Higher Despite Weak GDP Report

Key Insights

• Spain’s inflation exceeded 10% in June, and it looks that the inflationary situation in weaker EU members is getting out of control. 
• U.S. GDP fell more than expected in the first quarter. 
• Markets expect that the Fed will focus on fighting inflation, which is bullish for the U.S. dollar.  

Spain’s Inflation Exceeds Expectations

EUR/USD is currently trying to settle below the 1.0500 level as traders evaluate the recent economic data from the U.S. and EU.

In the EU, traders were focused on inflation data from Germany and Spain. Germany’s Inflation Rate increased by 0.1% month-over-month in June, compared to analyst consensus of 0.3%. On a year-over-year basis, Germany’s Inflation Rate increased by 7.6%.

In Spain, Inflation Rate grew by 1.8% month-over-month, compared to analyst consensus of 0.6%. On a year-over-year basis, Spain’s Inflation Rate increased by 10.2%. Spanish Prime Minister Pedro Sanchez has already noted that the inflationary trend was dangerous.

It should be noted that the disappointing inflation data from Spain was not surprising as the country’s Producer Prices increased by 43.6% year-over-year in May. There’s a lag between PPI and CPI so inflationary pressure will likely increase in the upcoming months.

This Friday, traders will have a chance to take a look at the Euro Area inflation data. Currently, analysts expect that Euro Area Inflation Rate increased by 8.4% year-over-year in June. Most likely, this report will have a material impact on market dynamics.

U.S. GDP Fell More Than Expected In The First Quarter

In the U.S., traders focused on the final reading of the first-quarter GDP Growth Rate report, which indicated that GDP declined by 1.6% quarter-over-quarter.

Interestingly, U.S. Treasury markets did not show strong reaction to the report. Meanwhile, the U.S. dollar continues to move higher against a broad basket of currencies as traders expect that the Fed will raise rates aggressively to fight inflation.

While the GDP report indicates that the U.S. economy may be slipping into a recession (two quarters of negative growth), markets do not expect that the Fed will change its plans in order to provide more support to the economy.

The market’s focus on Fed’s upcoming rate hikes may provide EUR/USD with an opportunity to settle below 1.0500 and develop additional downside momentum.

For a look at all of today’s economic events, check out our economic calendar.