Euro keeps hovering just above 1.1600 despite downbeat German Retail Sales data

The Euro (EUR) nudges lower against the US Dollar (USD) on Tuesday, giving away some of Monday's gains, with the EUR/USD pair hovering just above 1.1600, following rejection at the 1.1620 area. German Retail Sales data have not been particularly supportive, but the market might await the Eurozone Harmonized Index of Consumer Prices (HICP) release, due later on the day to make investment decisions.

Data released by the German Statistics Office on Tuesday revealed that German retail consumption dropped 3.4% in July, its sharpest decline in more than four years, against market expectations of a 0.4% increase and following a flat performance in June.

Eurozone inflation on tap

Later on the day, the Eurozone’s preliminary Harmonised Index of Consumer Prices (HICP) is expected to show that inflationary pressures accelerated to a 3.3% year-on-year rate in August, from 2.9% in July. These numbers would provide further reasons for the European Central Bank to hike interest rates at its monetary policy meeting due later in August.

The euro, however, is facing headwinds from the higher Oil prices stemming from the escalating tensions between the US and Iran. The price of the Brent barrel remains above $90, after rising more than 6% from last week’s lows, boosted by the resumption of hostilities between the US and Iran. These prices pose serious pressure on the Eurozone's economic growth.

In the Middle East, a tense calm reigned on Monday, but tensions remain high. US President Donald Trump threatened further action, as the US military attempts to curb Iranian capabilities to control sea traffic through the Strait of Hormuz, a corridor used to transport about a fifth of the global Oil supply before the war.

Political pressure on the Fed is weighing on the US Dollar

The US Dollar was boosted last week by hawkish comments from the Federal Reserve Chairman, Kevin Warsh, at the Jackson Hole meeting, but concerns about the independence of the US central bank remain alive and keep weighing on the US Dollar, which is failing to rally as it did in previous times when geopolitical tensions rose.

Analysts at BNP Paribas note that "President Trump has been relentlessly attacking the Federal Reserve and its leadership out of anger that they have not cut interest rates more." Against this background, markets are "unsure whether the Chairman he appointed will deliver the policy tightening that appears likely to be needed to restore price stability," say the BNP Paribas experts, underscoring concerns that persistent political interference could further undermine confidence in the central bank’s policy trajectory.