EUR/USD jumps to near 1.0950 as USD Index retreats ahead of US CPI data

The EUR/USD pair recovers to near 1.0950 in the European session as the US Dollar Index (DXY) has faced pressure ahead of the United States inflation data for December. Broadly, the major currency pair demonstrates a volatility contraction as investors are expected to take an informed decision after the release of the US Consumer Price Index (CPI).

S&P500 futures have added nominal gains in the London session. The broader market mood is still cautious as investors remain uncertain about the inflation data. The US Dollar Index (DXY) has faced selling pressure around 102.60. The 10-year US Treasury yields have dropped slightly below 4.0%.

As per the estimates, the headline inflation rose at a higher pace of 0.2% against 0.1% increase in November. The annual headline data accelerated to 3.2% vs. the prior reading of 3.1%. Meanwhile, core inflation that doesn’t take into account the volatile oil and food prices grew at a steady pace of 0.3%. The core CPI decelerated to 3.8% from increasing 4% in November, on an annual basis.

A sticky inflation report is expected to dent bets in favour of rate cuts by the Federal Reserve (Fed) from March. Fed policymakers have been supporting for keeping interest rates higher atleast until the end of first-half. Policymakers lack confidence that inflation is returning to the 2% target in a timely manner.

On the Eurozone front, European Central Bank (ECB) Vice President Luis de Guindos said that the process of inflation returning to 2% is expected to pause temporarily. Guindos is worried about a technical recession and weak economic prospects as economic indicators are reflecting a shrinkage in the oldest continent.

This week, monthly Eurozone Retail Sales data, released for November, contracted by 0.3% as expected. Higher interest rates and price pressures have deepening cost-of-living crisis, which have dampened the consumer spending momentum.