The euro weakened in the European session in reaction to economic data out of the Eurozone. German retail sales in August were unexpectedly weak. Retail sales dropped 0.4% month-on-month from July’s upwardly revised 1.6%. Other data on Eurozone inflation was also negative for the euro.
Eurozone CPI turned negative in September, confounding estimates for no change. The flash CPI estimate fell to -0.1% year-on-year in September from 0.1% in August. Expectations were for inflation to ease to 0%. Core CPI was in-line with estimates, coming in at 0.9% and unchanged from the previous month. As the euro area slips back into deflation, this adds to more pressure on the ECB and expectations of further policy easing.
The euro fell against the dollar from a session high of 1.1239 to 1.1174, while against the pound it fell to 0.7361.
Sterling bounced off a low of 1.5130 to a high of 1.5212 before easing back down to 1.5151. The pound was lifted after some upbeat UK data. The nation’s current account deficit fell to 16.8 billion pounds in the second quarter against forecasts of a deficit of 22.3 billion pounds. Meanwhile, GDP grew by 0.7% in the second quarter, which was unrevised from a previous estimate published on August 28.
The dollar broke back above the key 120 yen level in Europe to a high of 120.34 before sliding back towards 120.00.
US data today included ADP private payrolls, which beat expectations in September by adding 200,000 new jobs versus last month’s revised 186,000 positions.
Focus now shifts to Fed Chair Janet Yellen who is due to speak at the Community Banking Research and Policy Conference in St. Louis, Missouri. Yellen recently signaled that a Fed rate hike before year end is still on the table, so it will be worth watching to see if the recent hawkishness continues.