EUR/USD Price Forecast: US Dollar Strengthens on Upbeat Inflation Data
By Matías Salord (original author, FXStreet)
Adapted and expanded by [Your Name]
The EUR/USD currency pair came under renewed bearish pressure following the release of key U.S. economic data that reinforced positive sentiment toward the US dollar. As of the latest trading session, the pair was hovering below the 1.0700 mark, suggesting that risk appetite is shifting toward the greenback, particularly in response to encouraging inflation figures released earlier this week.
Highlights:
– Upbeat U.S. inflation data has boosted confidence in the US dollar
– Near-term outlook for EUR/USD leans bearish below 1.0700
– European economic indicators remain subdued, limiting euro support
– Multiple technical and fundamental indicators point to further downward risk
Overview of the EUR/USD Selloff
This week saw significant movement in the EUR/USD exchange rate after the U.S. Consumer Price Index (CPI) data showed higher-than-expected inflation. The headline annual CPI figure came in at 3.5% for March, up from 3.2% in February and beating market expectations of 3.4%. The core CPI, which strips out food and energy, remained steady at 3.8%, still above the Federal Reserve’s target of 2%. This reinforced expectations that the Fed may delay interest rate cuts, or even maintain elevated rates for longer than previously anticipated.
In contrast, the eurozone continues to face sluggish growth and inflation figures that are more in line with dovish monetary policy expectations. As such, the interest rate differential narrative has once again tilted in favor of the US dollar.
Market Reaction and Price Action:
– Immediate appreciation in the US dollar post-CPI release
– EUR/USD broke below key support at 1.0750, then 1.0700
– 10-year U.S. Treasury yields rose sharply, weighing further on EUR/USD
U.S. Treasury yields surged following the inflation data, with the 10-year yield climbing toward 4.5%. This added further support for the US dollar, as higher yields attract investor flows seeking returns. The dollar index (DXY), which tracks the greenback against six major peers, also rallied past 105.00, highlighting broad-based dollar strength.
Fed Rate Cut Expectations Reassessed
The inflation readings significantly altered market expectations regarding the Federal Reserve’s next moves. Prior to the recent data, markets had priced in multiple rate cuts for 2024. However, following the CPI surprise, rate cut probabilities have been pushed further down the calendar, particularly for the June and July meetings.
Key shifts in expectations:
– CME FedWatch Tool showed odds for a June rate cut drop below 30%
– September now more likely for potential easing, but still not a certainty
– Fed officials adopt a more data-dependent stance, signaling patience
Concerns about persistent inflation in the services sector remain high, especially with upward pressure in shelter and medical care costs. This has made it harder for markets to justify aggressive rate cut bets, and, consequently, it has offered strong support for the U.S. dollar in the short to medium term.
Eurozone Fundamentals: A Stark Contrast
While the U.S. economy displays resilience and persistent inflationary pressure, the eurozone paints a very different macroeconomic picture. European Central Bank (ECB) officials have noted subdued price pressures, particularly in the core readings. ECB President Christine Lagarde recently acknowledged that inflation is on a declining trajectory, and markets are now anticipating rate cuts possibly starting as early as June.
Eurozone challenges:
– Subdued economic growth, especially in Germany and France
– Weak consumer spending and industrial output
– Inflation closer to the ECB’s 2% target compared to the U.S.
Given this dynamic, the U.S.-Europe monetary policy divergence could grow even more pronounced, adding to downside risks for the euro in the near term. The interest rate
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