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Euro US dollar (EUR/USD) subdued ahead of US inflation print

US Federal Reserve Bank

Euro US dollar (EUR/USD) quiet as markets eye American CPI

The euro US dollar (EUR/USD) exchange rate is trading without a clear direction this morning ahead of the latest US inflation reports, due for release this afternoon.

At the time of writing the EUR/USD exchange rate is trading at $1.0861, virtually unchanged from this morning’s opening rate.

US dollar (USD) subdued ahead of CPI print

The US dollar is trapped in a narrow range this morning ahead of the latest US inflation reports.

With investors seemingly reluctant to place any aggressive bids ahead of the high impact release, USD struggles to find a clear direction ahead of the high impact release.

Economists at Japanese banking giant MUFG have noted that markets may be cautious of a surprise downturn in the latest American headline consumer price index, following unexpected warming in recent months.

The bank stated:

‘After two upside surprises, there is an understandable caution over a potential weaker print that would quickly see June rate cut expectations increase again. But there also must be more to this reluctance than the imminent CPI release.’

However, deferred rate cut bets appear to buoy the ‘greenback’ for now, with markets pricing in only 60bps of cuts for the remainder of the year. In January 2024, expectations stood at 150bps worth of cuts, though continually robust US economic data has served to significantly dial down these expectations in recent weeks, with current expectations at their lowest level since October 2023.

Elsewhere, an upbeat market sentiment further stifles any notable movement for the safe-haven ‘greenback’.

Euro (EUR) wavers ahead of ECB rate decision

The euro (EUR) is fluctuating this as investors look towards the European Central Bank’s (ECB) upcoming interest rate decision.

Amid a lack of macroeconomic releases throughout today’s session, EUR stands rangebound as markets prepare for the central bank’s looming meeting.

While the ECB is widely expected to maintain its current base rate of 4.5%, keeping interest rates at a twenty-two-year high, investors will be eager to see whether policymakers will begin paving the way for a June rate cut.

Following the release of the ECB’s quarterly survey of lenders yesterday, reports that loan demand is declining may prompt a dovish pivot from rate-setters tomorrow.

Tomasz Wieladek, an economist at T Rowe Price, commented:

‘This is a clear indicator that monetary policy remains too tight in the euro area. The ECB will take this into account when deciding to ease policy in June. I believe that the survey data yesterday and the implications for investment make four to five sequential rate cuts in 2024 much more likely.’

Euro US dollar exchange rate forecast: US inflation data in focus

Coming up, US inflation data will likely be the core catalyst of US dollar exchange rates for the remainder of the session. Signs of stubborn inflation may see USD rally amid dialled back rate cut speculations.

In addition to this, EUR could stumble amid a strengthening USD, due to the currency pairings negative correlation.

Otherwise, EUR may remain relatively quiet ahead of tomorrow’s ECB interest rate decision. Should policymakers err on the side of dovish, the common currency could falter.