Euro remains pinned near 13-month lows following soft German consumer confidence

• EUR/USD remains capped below 1.1370, after hitting fresh 13-month lows at 1.1324.
• German consumers' confidence has stabilized at weaker levels.
• Later on Thursday, the US PCE Price Index figures are expected to show that inflation rose to fresh three-year highs.

The Euro (EUR) edges lower against the US Dollar (USD) on Thursday, extending its decline for the fourth consecutive day. The pair has picked up from the 13-month lows at 1.1324 hit on Wednesday, but remains capped below 1.1370, as German GfK Consumer Confidence data failed to support the common currency.

German consumers’ feelings about the country’s economic activity ticked up to -29.2 in July from June’s -29.7, upwardly revised from the previously estimated -29.8, but fell short of market expectations of a -27.5 reading.

German consumers hold negative economic expectations

The Nuremberg Institute for Market Decisions (NIM) highlighted that consumer sentiment has stabilized over the last few months but that it remains weaker than before the Middle East conflict started. The moderate improvement seen in July results from slightly more positive income expectations, but according to the NIM, willingness to buy remains low, and the majority of consumers still expect the economic situation to worsen over the next twelve months.

The US Dollar, on the other hand, is drawing support from rising bets that the Federal Reserve (Fed) will hike rates in the second half of the year. In this context, the Personal Consumption Expenditures (PCE) Price Index release, due later on the day, will be analysed with particular interest to confirm those views.

The market consensus anticipates a further acceleration of price pressures in May, as the data predates June’s 25% decline in Oil prices. The yearly PCE inflation is seen growing at a three-year high of 4.1%, from 3.8% un April, with the core reading seen up top 3.4% in the 12 months to May, from 3,3% in the previous month.