The Euro (EUR) extended its losses against both the British Pound (GBP) and the Canadian Dollar (CAD) following the release of Eurozone inflation data that failed to impress market participants. Against the Pound, the EUR/GBP pair retreated to 0.8560 from session highs of around 0.8575, remaining within a narrow range but exhibiting a bearish tone as momentum indicators turned negative [1]. Similarly, EUR/CAD continued its losing streak for the fourth consecutive day, trading near 1.6080 during European hours on Tuesday [2].
Eurostat's preliminary Harmonized Index of Consumer Prices (HICP) for August showed a year-on-year increase of 3.3%, which was unchanged from July and met market expectations according to one source [1], but was reported as higher than the previous reading of 2.9% by another [2]. Core inflation slowed to 2.4% year-on-year, falling short of the expected 2.5% and down from the prior 2.5% [1][2]. On a monthly basis, headline HICP rose by 0.4%, up from 0.2% previously [1][2], while core HICP increased by 0.2% after remaining flat in July [2].
Additional economic data painted a mixed picture. The Eurozone HCOB Manufacturing PMI was revised down to 52.7 in August from previous estimates of 52.7, while German Retail Sales contracted sharply by 3.4% in July, marking the steepest decline in over four years and missing expectations for a 0.4% increase [1]. In contrast, Germany's HCOB Manufacturing PMI was revised up to 54.3 in August from July's 52.2, marking the third consecutive month of expansion and the highest level since May 2022 [2].
Market sentiment for the Euro was further dampened by external factors. The Canadian Dollar benefited from a rally in crude oil prices, driven by renewed military hostilities in the Middle East, which raised concerns over potential disruptions to oil supply lines [2]. Societe Generale strategists noted that Brent crude has maintained levels above key moving averages around $85/84 and is now testing a multi-month descending trend line, highlighting the resilience of the uptrend [2].
Looking ahead, the market focus in the UK is on Bank of England Governor Andrew Bailey's upcoming speech on Friday, with investors seeking confirmation of expectations for a rate hike at the September 16 monetary policy meeting [1].
CONCLUSION
Eurozone inflation data failed to provide support for the Euro, which weakened against both the Pound and the Canadian Dollar. Mixed economic indicators and external pressures, such as rising oil prices and geopolitical tensions, contributed to the subdued sentiment. Market participants are now turning their attention to upcoming central bank communications for further direction.