EUR/USD continues to lose ground this week. In the Tuesday session, the pair is trading at 1.1521, down 0.50% on the day. In economic news, Eurozone PPI edged lower to 0.3%, above the estimate of 0.2%. In the U.S, there are no major releases on the schedule. On Wednesday, Germany and the Eurozone release Services PMI and the Eurozone will publish retail sales. The U.S publishes ADP nonfarm payrolls and ISM Non-Manufacturing PMI.
The euro declined 1.2% last week, and the downward spiral continues. The EUR/USD is at its lowest level since mid-August, as it struggles to stay above the 1.15 level. With Italy and the EU on a possible collision course over Italy’s budget, the euro remains under strong pressure. The budget increases spending and cuts taxes and sets the budget deficit at 2.4% for 2019, 2020 and 2021. The European Commission must approve the budget, and EU policymakers are unhappy with the budget, as they have been pushing Rome to reduce the current deficit, which stands at 1.6% of GDP. EU Commissioner Pierre Moscovici said last week that the budget could breach EU fiscal regulations and called the Italian deficit “explosive”. However, the Italian government strongly backs the budget, so this crisis could continue to weigh on the struggling euro.
In the U.S, consumer spending and confidence levels remain strong. Consumer spending rose 0.3% in August, matching the forecast. The UoM Consumer Sentiment report pushed above the 100-level for the first time since March, although the reading of 100.1 missed the estimate of 100.5 points. On the inflation front, the Core PCE Price Index, which is the Federal Reserve’s preferred inflation indicator, dipped to 0.0% in August, shy of the estimate of 0.1%. This was the first time the indicator failed to post a gain since March 2017. Still, inflation remains close to the Fed’s target of 2%, so a December rate hike remains likely.
