Euro surges as US Dollar weakens amid inflation speculations

Euro Surge

The EUR/USD pair achieved a new weekly high of 1.0880 recently. This trend relates to the anticipation of imminent inflation reports from the Eurozone and the United States, as well as the ongoing decrease in the US Dollar’s strength. Despite previous market speculations of adjustments to the Federal Reserve’s policy in Q4, a persistent risk-avoidance attitude dominates global markets, stimulating an increase in buying pressure for the Euro.

On Tuesday, the European trading session witnessed the EUR/USD pair augment to 1.0880, fueled by the dropping US Dollar. However, doubts surrounding the pace at which the European Central Bank (ECB) will trim key lending rates post its June meeting exist. This scepticism arises from the question of whether ECB officials will perceive the recent inflation increase and high energy prices as brief or lasting issues.

The anticipation of the Federal Reserve commencing interest rate cuts in September is dwindling, causing further pressure on the US Dollar. This combined with a rise in the chances of the Fed maintaining its current policy from 35% to 50% last week, is causing an upward pressure on the EUR/USD pair.

Euro peaks as US dollar weakens amid inflation uncertainty

Although the Bank of Japan is yet to show signs of veering away from its adaptive monetary policy, the Yen has gained power amid global uncertainties, resulting in disruptions in the Forex market.

Speculations for Federal Reserve rate cuts this week depend on April’s Core Personal Consumption Expenditure price index data, which is due to be released on Friday. The majority market belief currently leans towards a stable 0.2% monthly and an unchanged 3.5% annual inflation rate. This aligns with the Federal Reserve’s strategic plan of “average inflation targeting”, whereby rates are expected to remain consistent given a balanced and manageable inflation outcome.

The market’s expectation of one additional ECB lending rate cut post-June is a considerable deviation from earlier yearly predictions of six rate cuts. François Villeroy de Galhau, a French central bank policymaker and ECB member, recently confirmed the June cut. He stated that the ECB is scrutinizing the European economy carefully and is prepared to implement fast adjustments as required.

In conclusion, the forthcoming early Eurozone inflation figures for May and the initial May inflation data from Germany, scheduled for release this week, will potentially impact the Euro’s value. Furthermore, the current technical analysis predicts an elevation in the EUR/USD to 1.0880 prior to these significant inflation data releases.