US CPI did not revive the Dollar rally, will the ECB? Kit Juckes, Chief Global FX Strategist at Société Générale, analyzes EUR/USD outlook.

EUR/USD would probably drift lower on no change

Whether we get a hike today or a firm indication of one in a month or two, makes little difference though the shift in expectations this week means EUR/USD would probably drift lower on no change.  

The Euro’s challenge isn’t really policy however, it’s the dramatic shift in 2023/2024 GDP growth forecasts in the US relative to the Eurozone. 

Wednesday’s US CPI data had enough softness in it to stop the Dollar’s recent gains (and trigger a bounce in risk sentiment and some decent gains in China-sensitive currencies), and that switches the focus to US growth data. Strong nominal retail sales today would need to be seen in the context of inflation, and the US growth forecast revisions do leave the Dollar vulnerable to soft data (which challenge those changes) but there’s not much to support a bearish near-term US growth view.