Euro: Inflation data guides near term – Commerzbank

Commerzbank’s Volkmar Baur observed the EUR/USD briefly dropping to 1.115 before bouncing back above 1.12, as French bond yields steadied and sentiment improved following the IMF World Economic Outlook. He emphasized that for EUR/USD today, US September CPI will dominate over structural issues, with elevated market expectations suggesting a downside surprise could ease Federal Reserve pressure and bolster the Euro.

Throughout the night into Tuesday, EUR/USD briefly dipped as low as 1.115, but the exchange rate managed to recover during the day and is now back above 1.12. For EUR/USD today, however, concrete US inflation numbers for September will likely take precedence over structural developments. The market anticipates prices to surge by 0.6% month-on-month, pushing the annual inflation rate to 3.6%, primarily due to higher energy prices.

However, the expected rise in core inflation from 2.4% to 2.5% indicates the story is not solely about diesel prices. This positive news for the euro is further supported by the fact that market expectations are already quite elevated, with US headline inflation forecast at 0.6% month-on-month. A slight downturn in actual inflation could therefore provide some relief to the Federal Reserve and bond markets, potentially supporting the euro.