Euro US Dollar Exchange Rate Rises as German Inflation Jumps to 49-Year High
The Euro US Dollar (EUR/USD) exchange rate is trading higher as Germany’s preliminary consumer price index surges to the highest level since 1973. Meanwhile, the US Dollar (USD) is under pressure as a risk on market mood prevails.
At the time of writing, the EUR/USD exchange rate is trading at around $1.07, up roughly 0.3% from today’s opening levels.
Euro (EUR) Bolstered by Germany’s Latest CPI Reading
The Euro (EUR) is gaining ground against the US Dollar today in response to Germany’s latest consumer price index.
In Germany – the Eurozone’s largest economy – the preliminary CPI for May revealed inflation jumped to a 49-year high. Inflation soared to 7.9%, exceeding market forecasts of 7.6%, and printing significantly above the previous reading of 7.4%.
This is considerably above the European Central Bank’s (ECB) target rate of 2% and, as a result, could boost ECB interest rate hike bets. At present, EUR investors are split in pricing-in a 25 or 50-basis point hike, in spite of ECB chief economist Philip Lane’s dovish remarks dismissing the latter earlier in the day.
On the other hand, the EU’s latest draft sanction package against Russia is limiting the single currency’s upside.
In response to Russia’s invasion of Ukraine, the Eurozone is seeking to ease its reliance on Russian oil. However, as Russia is currently the Eurozone’s main energy supplier, this is raising concerns over European energy security and unnerving EUR investors.
Moreover, the single currency is facing pressure amidst weak Eurozone economic sentiment. Although printing slightly above market forecasts, sentiment across the bloc remained close to a one-year low in May.
US Dollar (USD) Subdued in Response to Risk On Sentiment
The safe haven US Dollar is losing ground against the Euro today as risk-on sentiment prevails.
The risk on sentiment comes after China announced plans to ease covid restrictions. In recent months, Beijing had implemented nationwide lockdowns due to its ‘zero-Covid’ policy.
This caused the Chinese export growth to plunge and had sparked global recession fears.
However, as restrictions are set to ease on Wednesday, reopening China’s economy, these fears have somewhat reduced.
On the other hand, Federal Reserve policymakers’ recent hawkish stance continues to provide the ‘Greenback’ with some limited support this afternoon.
Euro US Dollar Forecast: Will Eurozone’s CPI Reading Boost EUR Exchange Rates?
Looking ahead, the Euro US Dollar exchange rate may be bolstered by the Eurozone’s latest CPI release.
In May, the Eurozone’s inflation reading is forecast to increase from 7.4% to 7.7%. If this prints true, it may further boost ECB interest rate hike bets and strengthen EUR exchange rates.
Meanwhile, later this afternoon, Fed policymaker Christopher Waller is scheduled to deliver a speech.
Will a hawkish tone provide USD exchange rates with some support?