Euro dented as Eurozone inflation slows

The euro faced resistance on Friday after Eurozone inflation was shown to have cooled at a faster-than-expected pace last month.

Meanwhile, trade in the pound is mixed so far this week, with GBP/EUR stable at €1.1540 and GBP/USD ticking up to $1.2218. GBP/CAD is flat at CA$1.6576, while GBP/AUD rallies to AU$1.9026 and GBP/NZD holds steady at NZ$2.0349.

Coming up, will another contraction in US factory sector growth drag on the US dollar today?

What’s been happening?

The euro initially looked to close last week on a positive note, before the release of the Eurozone’s latest consumer price index.

The euro erased its gains as September’s CPI figures revealed inflation in the bloc slowed to a two-year low of 4.3%, further diminishing any chances of the European Central Bank (ECB) raising interest rates again.

Meanwhile, the pound, found only modest support on Friday with the release of the UK’s latest GDP figures. While growth in the first quarter was revised higher, it did little to improve the UK’s bleak outlook for the second half of 2023.

At the same time, the US dollar was choppy at the end of last week. USD exchange rates were initially undermined by risk-on flows and a tempering of Federal Reserve interest rate expectations in the wake of the core PCE price index.

However, the ‘greenback’ staged a convincing comeback later in the session amid an end-of-quarter correction.

What’s coming up?

Turning to this week, the focus at the start of the session will be the publication of the latest US PMI data.

The ISM manufacturing PMI is expected to report another contraction in US factory sector activity. Will another underwhelming reading weaken the US dollar? Or will concerns over the US economy stoke demand for the safe-haven currency.

In the UK, barring a positive revision to manufacturing sector growth, September’s finalised PMIs may weigh on the pound this morning as another contraction is likely to underpin the UK’s grim economic outlook. 

Finally, the Eurozone’s own PMIs are likely to paint an equally dreary picture for the bloc’s factory sector, and may limit demand for the euro today.