US dollar pressured by falling inflation

The US dollar stumbled on Friday, in response to a weaker-than-expected US inflation print.  

Meanwhile, the pound is mostly rangebound so far this morning with GBP/EUR flat at €1.1663 and GBP/USD stable at $1.2860. GBP/CAD is steady at CA$1.7026, while GBP/AUD and GBP/NZD slide to AU$1.9220 and NZ$2.0777, respectively.

Looking ahead, could some underwhelming Eurozone data pull the euro lower this morning?

What’s been happening?

The US dollar retreated at the end of last week. The ‘greenback’ initially fell in tandem with US Treasury yields.

USD exchange rates then came under additional pressure with the publication of the latest US core PCE price index as the Federal Reserve’s preferred indicator for inflation fell more than expected in June.

The euro also faced resistance on Friday morning after Germany’s latest GDP figures showed growth in the Eurozone’s largest economy unexpectedly stalled in the second quarter.

Germany’s consumer price index, then kept the pressure on the single currency in the afternoon, following a drop in inflation.

Meanwhile, the pound firmed at the end of last week, although this was mostly down to the weakness of its peers rather than any positive catalyst for Sterling.

What’s coming up?

We could see some significant movement in the euro at the start of this week, with the publication of some high-impact Eurozone data releases.

The Eurozone’s latest GDP figures are expected to report the bloc returned to growth in the second quarter, although in light of Germany’s weaker-than-expected GDP release, there is a risk EUR investors could be disappointed.

The accompanying CPI figures could prove even more damaging to the single currency, as an expected drop in inflation is likely to further undermine ECB rate hike bets.

In the absence of any notable UK economic data, the pound could be left directionless today.

US economic data is also thin on the ground at the start of this week. As a result any movement in the US dollar is likely to be tied to market risk sentiment. Could a bearish mood propel USD exchange rates higher?