EUR/USD edges lower as USD benefits from tighter Fed, haven flows.

EUR/USD declines on Thursday as the Euro weakens on the back of a worsening growth outlook.
A stronger US Dollar is speeding its ascent amid falling market bets of another aggressive rate cut from the Fed.
USD is further strengthening from haven flows as the conflict in the Middle East intensifies.

EUR/USD trades in the 1.1040s on Thursday, marginally down on the day as geopolitical risks increase demand for the safe-haven US Dollar (USD) while the Euro (EUR) weakens amid a gloomy economic outlook for the old continent.

EUR/USD slides on tighter Fed, haven flows

EUR/USD opens Thursday on the back foot after closing lower for three consecutive days. A single Euro now will buy almost two cents less than it did at the start of the week.

The Euro is weakening after lower-than-expected inflation data for September brings the official headline rate of inflation in the Eurozone to 1.8%, the first time it has fallen below the European Central Bank’s (ECB) target of 2.0% in 39 months. The data increases the chances the ECB will cut interest rates more aggressively, which, in turn, would be negative for the Euro as it discourages foreign capital inflows.

In the US, conversely, market bets are falling that the US Federal Reserve (Fed) will follow up their “jumbo” 50 basis points (0.50%) cut with an equal-sized cut in November, and this is supporting the US Dollar.

Strong US jobs data is helping to reassure investors that the US economy will not experience a hard landing. JOLTS Job Openings rose to 8.04 million in August from a revised-up 7.71 million in July, and ADP Employment Change – an estimate of private payrolls growth – came out at 142K in September, beating the previous month’s 103K and expectations of 120K. Markets now await the US’s most important labor report, the Nonfarm Payrolls (NFP) scheduled for release on Friday.

Rising geopolitical tensions in the Middle East further support the US Dollar because the Greenback is viewed as a safe-haven in times of crisis, further weighing on the EUR/USD pair. Israel has stepped up its multi-front war against Iran and its proxies – Hamas, Hezbollah and the Houthi of Yemen. After Iran’s bombardment of Israel on Tuesday, fears are increasing that Israel will retaliate with targeted attacks on Iranian Oil installations and possibly even nuclear development sites.

Europe faces an uncertain future

The Euro is suffering because of a pessimistic longer-term economic growth outlook for Europe. On Wednesday, these concerns crystallized in a speech that President Emmanuel Macron of France gave in Berlin. Macron warned about the existential risks for Europe if it failed to invest in its future in order to stay competitive in a rapidly changing new world order headed by the United States and China.

Europe, he said, was facing “an existential risk” unless it increased investment in innovation and Artificial Intelligence (AI), imposed tariffs to ensure a level playing field with subsidy-backed competitors, simplified complex regulation and integrated member states at a capital market and governance level. His speech echoed proposals made by former Prime Minister of Italy Mario Draghi in his recent report on EU competitiveness, which was similarly pessimistic in its conclusions.