EUR/USD weakens to approximately 1.1735 during the early Asian session on Wednesday. The US Consumer Price Index increased by 3.8% year-over-year in April, marking the highest level since May 2023. According to ECB’s Nagel, the likelihood of rate hikes is on the rise. The EUR/USD pair is currently positioned in negative territory, trading around 1.1735 in the early Asian session on Wednesday. The US Dollar is gaining ground against the Euro following stronger-than-anticipated US inflation figures.
Market participants prepare for the upcoming release of the US April Producer Price Index report, scheduled for later on Wednesday. In April, the annual inflation rate in the United States, indicated by the change in the Consumer Price Index, rose to 3.8%, up from 3.3% in March, as reported on Tuesday. This figure exceeded the market consensus of 3.7% and marked the highest level since May 2023. In April, the CPI saw a monthly increase of 0.6%, a decrease from the 0.9% rise in March, aligning with analysts’ expectations. Furthermore, the core CPI, which omits the fluctuating food and energy prices, increased by 0.4% on a monthly basis and 2.8% on a yearly basis, respectively.
This inflation report has intensified speculation regarding potential interest rate hikes by the Federal Reserve later this year, thereby bolstering the Greenback and posing challenges for the major pair. Hawkish remarks from officials at the European Central Bank may bolster the value of the shared currency. On Wednesday, Bundesbank President Joachim Nagel indicated that the likelihood of the central bank needing to increase borrowing costs as a result of the Iran war is increasing.
Meanwhile, ECB Governing Council member Martin Kocher stated on Monday that there is no necessity to postpone the interest rate hikes if energy prices do not recover rapidly. The current financial landscape indicates a 92% probability of a 25 basis point increase at the June meeting, with expectations for a total of three hikes by the conclusion of 2026, as reported by Reuters.