Looming US default is keeping markets on edge. However, today's release of consumer inflation data in the eurozone will take up most of attention as forecast say it will be down to 0.7% m/m and up 7.0% y/y.
Investors will be interested with how euro reacts to these data, especially since earlier, after reaching a historic high of 10.6%, consumer inflation began to decrease, but remains at critically high levels. This may stimulate the ECB to continue raising interest rates, which is also what ECB chief Christine Lagarde hinted at her speeches before.
But why isn't euro strengthening against dollar at the moment? Firstly, it is not independent and is heavily impacted by events in the US. Dollar is the world's reserve currency, so its influence is great on other world currencies.
The second reason is the issue on US debt ceiling, which directly affects the volume of dollar liquidity and possible Fed policy regarding interest rates. In this situation, dollar is perceived as a safe haven currency, so euro does not get much support despite Lagarde's hawkish statements.
Euro's downward dynamic may intensify if today's inflation figures show an increase, primarily on the year-on-year data. There will be a further decline because the continuation of the ECB's rate hike cycle will continue to push the European economy into a crisis. The main argument will be the weakness of the local economy and the continuation of the process of production and capital flowing from Europe to America.
Forecasts for today:
EUR/USD
The pair is testing the support line at 1.0845. Overcoming this, as well as the release of inflation data in the eurozone and the persistent topic of national debt in the US, could lead to a drop to 1.0720.
GBP/USD
The pair is showing a downward trend. A decline and consolidation below 1.2440 could prompt a further fall to 1.2350.
