Euro US Dollar Exchange Rate Slips Despite Hotter-than-Expected Inflation
The Euro US Dollar (EUR/USD) exchange rate is weakening this morning despite Euro area inflation remaining elevated, beyond expectations.
At time of writing the EUR/USD exchange rate is trading around $1.0621, a 0.44% fall from this morning’s opening levels.
Euro (EUR) Subdued Despite Elevated Rate Hike Bets
The Euro is struggling for demand against its stronger peers in the wake of headline CPI easing less than expected. Against expectations of a much lower 8.2%, inflation in the Eurozone only eased modestly to 8.5% from 8.6%.
Despite falling to the lowest rate since May last year, inflation in the Euro area remains elevated, far above the European Central Bank’s (ECB) target rate. With inflation across most of the major economies in the EU also remaining high, ECB rate hike bets are likely to soar. Bert Colijn, Senior Economist, commented on the data:
‘While some forward-looking indicators for inflation are improving, the faster pace of underlying inflation means the European Central Bank has no reason to stop hiking anytime soon.’
Meanwhile, core inflation surged to a fresh record high of 5.6%. Further emphasising the fact that inflationary pressures are yet to ease sufficiently. The market has all but priced in another 50bps rate in the March meeting, but the latest data could extend the central bank’s monetary policy path.
US Dollar (USD) Supported by Hawkish Fed
Meanwhile, the US Dollar is strengthening on an increasingly cautious market mood, combined with elevated rate hike bets from the Federal Reserve.
US Treasury bond yields surged this morning ahead of key labour market data released later today. Expectations of another bold 50bps rate hike sit at 33% in the March meeting but could increase if the labour market remains tight.
Safe-haven flows also appear to be lending modest support to the US Dollar as global market sentiment wavers. Fears of recessions and increasing interest rates are pushing investors more to safe-haven currencies like the US Dollar.
Euro US Dollar Forecast: ECB Speech to Spur the Euro?
Looking ahead, the Euro US Dollar exchange rate could see further fluctuations with a speech from ECB board member Isabel Schnabel. With inflation remaining stubbornly high, ECB rate hikes could surge on a hawkish tone.
Meanwhile, the US Dollar could see further gains if employment data continues to point to a tight labour market. Initial jobless claims are expected to climb modestly, which could dampen expectations.
