EUR/USD is clinging to the 1.22 area after an upward move on Tuesday as inflation moved to 2% in the eurozone. Economists at MUFG Bank expect the pair to be supported by the European Central Bank in this context of above-target levels of inflation.
ECB set to mimic the Fed for now
“High levels of inflation beyond the desired target level is now a fact for the ECB as well after yesterday’s flash CPI print for May revealed a jump to 2.0% from 1.6% in April – above the official target of “close to but below 2.0%”. For now there is no issue here – the ECB has already indicated that it will look beyond the temporary spurt in inflation being caused by base effects and the unusual impact of a sudden reopening of economies after lockdown.”
“Price pressures are set to build further over the coming months. That’s when a greater degree of divergence will potentially become more evident between the ECB and the Fed. The ECB’s formal policy mandate has not changed whereas the Fed’s has through its announcement last year. That will inevitably bring with it evidence of greater resistance to letting inflation run hot like the Fed will be able to do.”
“The ECB is undergoing its own policy review with the conclusions due around the end of the year but we are not convinced the ECB will follow the Fed’s lead and move to an ‘average inflation targeting’ regime. Removing the symmetric downside bias to the definition of price stability might be all we get from the ECB which will result in an inherently more restrictive bias to policy in Europe. That expected outcome will help provide support for EUR/USD going forward as we go through this period of above-target levels of inflation.”
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 retreats below 1.0850 ahead of Fedspeak
EUR/USD stays under modest bearish pressure and trades in negative territory slightly below 1.0850 after closing modestly lower on Thursday. In the absence of macroeconomic data releases, investors will continue to pay close attention to comments from Federal Reserve officials.
GBP/USD stays under modest bearish pressure near 1.2650
GBP/USD edges lower toward 1.2650 after posting marginal losses on Thursday. The US Dollar holds its ground following the selloff seen after April inflation data and makes it difficult for the pair to gain traction. Fed policymakers are scheduled to speak later in the day.
Gold holds steady above $2,380, Fed speakers in focus
Gold trades with a positive bias on Friday and holds above $2,380. The benchmark 10-year US Treasury bond yield stays flat near 4.4% following Thursday's rebound, allowing XAU/USD to keep its footing ahead of speeches from Fed officials.
XRP steadies at $0.51 as Ripple plans to expand XRP Ledger, custody services in Africa
Ripple hovers close to $0.51 on Friday, above the psychologically important $0.50 level, as traders await the court ruling of the lawsuit against the US SEC and amid new commitments from the firm to expand its services in Africa.
Disputes and De-risking: US-China trade dispute changes trade flows
The bilateral trade dispute between the US and China is entering a new round and is leading to renewed discussions about the deglobalisation of global trade in goods.