EUR/USD bears stay in charge to test 1.1450 fresh cycle lows

EUR/USD is trading on the backfoot in a sleepy mid-day North American session with the bond market closed for Veterans Day. The euro is still suffering from the surge in the US dollar following the prior day's US inflation data beat. At the time of writing, EUR/USD is down some 0.20% after falling from a high of 1.1487 to a low of 1.1453. 

The US dollar continues to track higher levels, currently printing the highest since July 2020 at 95.1410 and higher by 0.29%. The following through comes on the back of the strongest inflation reading in more than three decades.

Traders are anticipating US interest rate hikes next year. The Consumer Price Index (CPI) posted its biggest monthly gain in four months to lift the annual increase in inflation to 6.2%, the strongest year-on-year rise since November 1990. CPI is now at new cycle highs and both the yearly and monthly prints show a second straight month of accelerating gains. 

Time for Fed lift-off?

''The transitory theme remains under fire,'' analysts at Brown Brothers Harriman argued. ''With low base effects from November and December 2020 in place, the YoY rates are very likely to move even higher from these already lofty levels. The Federal Reserve’s preferred measure of inflation (core PCE deflator) won’t be reported until November 24 but it seems very likely to accelerate from the 3.6% YoY pace in September.''

''We still think Q2 seems too soon for lift-off but the market now sees a nearly two-thirds chance. Q3 liftoff is fully priced in, as is another hike in Q4,'' the analysts added. 

ECB/ Fed divergence weighs on EUR/USD

Meanwhile, the European Central Bank's dovish theme will most likely hamstring the euro. However, ECB’s Roberts Holzmann said QE could end next fall and tipped an exit strategy for the central bank. ''We do not think the majority at the ECB shares this hawkish take but we will know more on December 16, when the ECB is set to announce its plans for QE (PEPP and APP) going forward,'' analysts at BBH argued.