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EUR/USD Consolidates Near 1.1150, Marking New 2023 Highs
EUR/USD extends advances above the 1.1100 region as US dollar weakness persists. The US inflation data indicated the likelihood of additional rate increases by year's end has decreased. Later in the month, the European Central Bank (ECB) will presumably increase interest rates further. Investors will await the later-in-the-day release of the US Producer Price Index (PPI).
In the early Asian session, the EUR/USD pair is trading on the front foot, flirting with a new 2023 high near 1.1150 amid widespread US dollar weakness.
Wednesday marked the first time since March 2022 that the pair broke decisively above the 1.1100 level. The issuance of the Producer Price Index (PPI) is anticipated later in the day.
Wednesday, the US Bureau of Labour Statistics (BLS) reported that the country's Consumer Price Index (CPI) fell to 3% YoY in June from 4% in May. This result was marginally below market expectations of 3.1%. Meanwhile, core CPI inflation, which excludes volatile food and energy costs, decreased from 5.2% to 4.8%. Both CPI and core CPI increased 0.2% on a monthly basis, missing analyst expectations.
In response to the weaker-than-expected inflation reports, there was renewed selling pressure on the US Dollar. The US Dollar Index (DXY), a measure of the Greenback's performance against a basket of six major currencies, reached its lowest level since April 2022, hovering just above the 100.50 level.
The inflation data indicated a reduction in inflationary pressure in the United States economy. The next meeting of the Federal Open Market Committee (FOMC) is scheduled for July 25-26, and the market expects a rate increase at that meeting. However, the likelihood of additional rate increases by year's end has diminished significantly.
Due to persistent inflationary pressure in the euro area, the ECB remains hawkish and will likely raise its policy rates by a quarter percentage point later this month. Inflation as measured by the Consumer Price Index (CPI) in Germany rose 0.3% month-over-month in June, while inflation in Spain rose 1.9% year-over-year.
On Thursday, investors will closely monitor additional US inflation data. Annually, it is anticipated that the Producer Price Index (PPI) will decline from 6.6% to 6.1%, while the fundamental figure will fall from 5.3% to 4.8%. Also on Thursday, the European Central Bank (ECB) will disclose the minutes of its most recent meeting.
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