Euro lower as US inflation dips slightly

The euro is lower on Thursday. In the North American session, EUR/USD is trading at 1.0908, down 0.28%.

The German economy has been struggling but there was positive news as German retail sales rose 1.6% in August and 1.5% in July, after declines of 1.1% in June and 1.4% in May. The four monthly releases were all published today due to a technical problem in June.

US inflation for September was within expectations and the market reaction has been muted. Headline CPI continued its downswing and rose 2.4% y/y, down from 2.5% in August but above the market estimate of 2.3%. The decline in inflation was driven by a decrease in energy prices, particularly gasoline. On a monthly basis, CPI rose 0.2% in September, unchanged from August but above the market estimate of 0.1%.

Core CPI remains a bit high and came in at 3.3% y/y, above the August reading of 3.2% and the market estimate of 3.2%. Still, the Fed has demonstrated that it is willing to slash rates by 50 basis points despite inflation running above the 2% target. Today’s inflation data hasn’t changed market expectations for the November meeting, which remain at around 85% for a cut of 25 basis points.

The Fed minutes reflected optimism about the US economy, a signal that more rate cuts are in the pipeline. There was only one dissenting vote against the 50-bps cut in September, but the minutes indicated that some dovish members voted with the majority although they would have preferred a modest 25 bps cut. Jerome Powell may not have the same support for another jumbo cut if the labor market remains solid. That could mean cuts of 25 bps at the November and December meetings.

• EUR/USD has pushed below support at 1.0920 and is testing support at 1.0901. Below, there is support at 1.0865
• 1.0956 and 1.0975 are the next resistance lines