- US CPI at 3.1% YoY with Core CPI at 3.9% contradicts softer inflation expectations.
- Futures tilt towards later Fed easing, with consensus for unchanged rates in May.
- US Treasury yield surge, reaching new highs since November, due to adjusted rate forecasts.
- ZEW Economic Sentiment Index exceeds forecasts, indicating optimism for ECB and Fed policy shifts.
The EUR/USD tumbled from around daily highs at 1.0796 following a red-hot inflation report in the United States (US) that pushed back expectations of Federal Reserve interest rate cuts, as seen by futures market data. At the time of writing, the pair exchanged hands at 1.0715.
US CPI pushed back interest rate cuts by the US central bank
The US Department of Labor revealed that inflation ticked slightly above expectations, catching traders off guard. Headline inflation, as measured by the Consumer Price Index (CPI) for January, came at 3.1% YoY, lower than December’s data but above the 2.9% expected. Core CPI was unchanged at 3.9%, up from a 3.7% dip estimate on annual figures.
After the data, traders pushed back the first Fed rate cut to June, with traders seeing a 62% chance of keeping the federal funds rate at the 5.25%-5.50% range in May. US Treasury bond yields edged up, with 2s hitting 4.633%, its highest level since November 28, and the 10-year at 4.297%.
In the meantime, during the European session, the ZEW Economic Sentiment Index exceeded estimates and the previous reading data. ZEW President Achim Wambach commented, “Over two-thirds of respondents expect the European Central Bank to make interest rate cuts in the coming six months, and nearly three-quarters are anticipating imminent rate cuts by the US central bank.”
EUR/USD Price Analysis: Technical outlook
The major dipped towards the 1.0700 figure following the report, but buyers entered the market, lifting the exchange rate to the current exchange rates. A decisive break below 1.0700 could drive the spot towards the November 10 low of 1.0656. the next support would be 1.0600. on the flip side, if buyers regain the 100-day moving average (DMA) at 1.0790, look for a re-test of 1.0800.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD hovers around 1.0750 with a negative sentiment amid hawkish Fed
EUR/USD could extend its losses for the third successive session, trading around 1.0750 during the Asian session on Thursday. The US Dollar appreciates amid expectations of the Federal Reserve’s maintaining higher interest rates.
GBP/USD holds below 1.2500 ahead of BoE rate decision
GBP/USD extends its losing streak for the third successive session, trading around 1.2490 during the Asian session on Thursday. Thursday brings the Bank of England interest rate decision, with expectations of maintaining interest rate at 5.25%.
Gold price gains ground, investors await US data, Fedspeak for fresh catalyst
Gold price trades with a positive bias on Thursday amid the absence of top-tier economic data releases at mid-week. However, multiple headwinds, such as the firmer US Dollar and the hawkish comments from the US Federal Reserve are likely to cap the upside of the precious metal in the near term.
President Biden threatens crypto with possible veto of Bitcoin custody among trusted custodians
Joe Biden could veto legislation that would allow regulated financial institutions to custody Bitcoin and crypto. Biden administration’s stance would disrupt US SEC’s work to protect crypto market investors and efforts to safeguard broader financial system.
Dollar still trying to hold on
There have been some doubts from some Fed officials as to whether policy is restrictive enough. These doubts have forced some reconsideration of Fed bets, albeit mild, back in the hawkish direction.