Heading and high energy prices increase pressure on euro

On Monday morning, September 7, the EUR/USD pair is trading in a narrow range of 1.1605-1.1620 dollars.

The further dynamics of the European currency will depend on several factors at once: decisions of the European Central Bank and the US Federal Reserve System, fresh macroeconomic statistics, as well as the development of the conflict between the US and Iran.

One of the main factors supporting the euro remains inflationary processes in the eurozone. According to a preliminary estimate by Eurostat, annual inflation in August accelerated to 3.3% against 2.9% in July. At the same time, core inflation remains significantly lower than the overall figure, which somewhat reduces concerns about sustained inflationary pressure.

The rise in prices is largely related to the energy component. That is why the further increase in oil prices is becoming a serious problem for the ECB: on the one hand, higher inflation may require maintaining a tight monetary policy, on the other — expensive energy can worsen the economic prospects of the eurozone.

Business activity in the region remains stable so far. The composite PMI index of the eurozone in August amounted to 52 points, that is, it remained above the 50 mark separating growth from contraction in activity. However, the services sector slowed down somewhat — to 51.6 points.

In the US, the situation looks somewhat better. The August labor market report showed an increase of 162 thousand jobs outside agriculture, and unemployment remained at 4.1%. These data turned out to be strong enough to limit expectations of a quick easing of Fed policy.

Thus, the dollar retains an important advantage: the American economy still shows greater resilience, and a strong labor market allows the Federal Reserve not to rush into lowering rates.

For EUR/USD, this means maintaining the risk of a downward movement, especially if subsequent US statistics also turn out to be strong.