Euro surges on weaker inflation

The Euro continues to surge against the US dollar in today’s trading session, hitting its highest level in two months after the release of the latest inflation figures from the US prompted traders to scale back expectations on a rate hike next month by the Federal Reserve and are now pricing in several rate cuts by the end of the year.

The gains for the Euro followed the release of the US inflation report for March, which featured the headline rate rising to 5% year-over-year. But that pace slowed from 6 percent in February and marked the lowest rate since May 2021, according to the Bureau of Labor Statistics. Analysts had been expecting a figure of 5.2 percent.

Traders how now reduced their expectations for a final rate hike next month from the Fed and many now believe on the back of these latest inflation figures, the US Central Banks latest rate hiking cycle has come to an end.

"A modestly softer-than-anticipated US inflation report, which appears to have thrown another Fed rate hike in May in a bit of jeopardy," said Matthew Ryan, head of market strategy at Ebury, a foreign exchange services company.

Pricing in the Fed funds futures market indicates a 67.2% probability the Fed will raise its benchmark lending rate by 25 basis points at its May 2-3 meeting, a drop from 72.9% on Tuesday. Meanwhile, traders still see the Fed starting to cut interest rates in July to a range of 4.75%-5%, followed by more cuts to the end of 2023 and into 2024.

Some analysts are still not convinced that the Fed are done with rate hikes and Bill Adams, chief economist at Comerica Bank believes one more rate hike will be delivered next month before the fed finally pauses.

“The Fed looks more than likely to opt for a 10th straight rate increase in May, with major equity indexes holding up, consumer confidence higher in March, solid payrolls growth, and a low unemployment rate in the backdrop. A May increase "will probably be the last hike of the cycle, as anticipated in the Fed's March dot plot." Mr Adams said.