Euro down awaiting CPI figures

The EUR/USD pair tumbled below the 1.09 mark in yesterday’s trading session after Federal Reserve chair Jerome Powell hinted at more than one additional rate which shows the US Central Bank is not done with tightening monetary policy.

At a panel discussion between the heads of the ECB, Fed, BoE and BoJ, ECB President Lagarde cemented expectations for a July hike, but what caught investors’ attention were hawkish comments by Fed Chair Powell.

Powell said that he is not ruling out the possibility of a July hike and noted that more rate increases are likely this year before the Fed takes the sidelines, while remarks that he does not see inflation falling to their objective this year or the next, suggested that rate cuts are out of the discussion for now.

His comments finally convinced some participants that the Fed is likely to do more, but according to Fed funds futures, investors are not pencilling in two more hikes yet which means that there is room for further repricing should US data support the notion of more than one additional Fed increase, which could translate into more dollar strength.

However, should data fail to do so, the dollar may come back under selling interest against currencies, such as the euro and the pound, whose central banks are seen delivering more hikes and are not expected to proceed with cuts in 2024.

Today, euro-dollar traders are likely to turn their attention to Germany’s preliminary CPI data ahead of the numbers for the Eurozone as a whole, scheduled for tomorrow.

Expectations are for German inflation to have accelerated, and although the headline rate for the Euro area is expected to have declined, underlying price pressures excluding food, energy and tobacco are forecast to have also accelerated, which could confirm the ECB’s hawkish stance and perhaps trigger another rebound in EUR/USD currency pair.