The early Asian session on Wednesday saw an increase in EUR/USD to about 1.1425. The US Consumer Price Index rose by 3.5% year-over-year in June, a figure that was lower than anticipated. Traders have increased their expectations for an ECB rate hike following the recent surge in oil prices. The EUR/USD pair advances to approximately 1.1425 in the early hours of trading on Wednesday in Asia. The US Dollar weakens against the Euro as softer-than-expected US inflation data temporarily eased pressure on the Federal Reserve. Market participants will closely monitor the upcoming US Producer Price Index report, scheduled for release on Wednesday.
US inflation, as indicated by the US Consumer Price Index, decreased to 3.5% year-over-year in June, a reduction from the three-year peak of 4.2% recorded in May, as reported by the US Bureau of Labour Statistics on Tuesday. This figure came in below the market expectations of 3.8%. In June, the headline CPI experienced a monthly decline of 0.4%, contrasting with an increase of 0.5% observed in May. Meanwhile, the core CPI, which excludes volatile food and energy prices, remained stable on a monthly basis, reflecting a 2.6% increase year-over-year, in contrast to the 2.9% rise observed in May and the market’s expectation of 2.8%.
The probability of a July rate hike decreased to 16% from 42% on Monday, as indicated by the CME FedWatch tool. However, the likelihood of a rate increase this year remained relatively strong at 80%, a decline from 89% on Monday. Fed Chairman Kevin Warsh stated on Tuesday that the deceleration of inflation in June does not signify that the objective has been achieved. On Monday, Fed Governor Christopher Waller indicated that rates might require an increase “in the near term” should data reveal inflation persisting significantly above the central bank’s 2% target.
Across the pond, traders increased their bets on accelerated interest-rate hikes by the European Central Bank following a spike in oil prices that rekindled concerns about inflation. Markets anticipate that the ECB will increase interest rates by 25 basis points in September, with an additional hike by the end of the year considered highly likely, as per sources.