The EURUSD currency pair is in the spotlight this week as concerns about economic growth in the US and EU cloud the outlook.
Markets prepare for FOMC minutes
On the US dollar side, the FOMC Minutes will be released later today and will provide additional information on the economic outlook and the central bank’s monetary policy stance. In December, the Federal Reserve slowed the pace of interest rate hikes, but that should not mean an easing of monetary policy. Depending on the rhetoric in the minutes, the dollar may react.
The Fed relies on economic data to decide interest rates, and the evolution of the manufacturing sector should be a source of concern.
US manufacturing health
The ISM Purchasing Managers’ Index (PMI) will be released today and should provide some insight into the health of the US manufacturing sector.
December’s manufacturing PMI is expected to fall to 48.5 from 49 in November, indicating further contraction in this key sector. The November figures showed the first decline in manufacturing output since May 2020, with broad-based declines in new orders, supplier deliveries, order books and employment.
If something unexpected happens in the results, USD currency pairs can be affected.
On Friday, a series of data will be released with a possible impact on the EUR side of the world’s most traded currency pair.
European inflation decreased in December
The flash inflation level for December was 9.7% compared to 10.1% in the corresponding period of the previous year, and 0.1% compared to negative 0.1% in November. The base inflation rate is estimated at 5% per year.
Decline in retail sales
EU retail sales fell by -1.8% month-on-month and -2.7% year-on-year in October, as inflation weighed on consumer spending that could save for Christmas shopping in November and December. Updated retail sales figures for November are expected to be down 0.5% month-on-month and minus 3.3% year-on-year.
October’s weakening scenario showed the biggest drop in trade since December 2021, with sales of non-food items, online shopping, beverages and tobacco falling.
Consumer confidence in Europe is falling sharply
The final reading of consumer confidence for December will be released on Friday and is expected at minus 22.2, versus minus 23.9 previously.
Inflationary pressures appear to be easing in the EU, but have left behind shaken consumer confidence and an impact on the retail sector, which will weigh on economic performance.
Will the EURUSD pair be volatile? Traders and investors should be aware of the jitters surrounding fears of a global recession and factor this into their scenarios while keeping abreast of recent developments.
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