Euro on Bullish Trajectory Following Lower US Inflation

Following the publication of a modest inflation report in the United States, as indicated by the Department of Labor’s (DoL) October Consumer Price Index (CPI) data, the euro (EUR) ended last week on a stronger note and could resume on a bullish trajectory this week.

That said, as expectations for a slowing in the Federal Reserve’s (Fed) tightening cycle following the CPI announcement remained high, the US dollar (USD) extended its losses for four straight weeks. As a result, the EUR/USD increased by 1.42% to trade at 1.0352 as the euro continued to rise.

Wall Street saw significant gains for the week. Core CPI, which the Federal Reserve regularly monitors, slipped from 6.6% YoY in September to 6.3% on Thursday, considerably below expectations, according to US inflation data.

According to data released on Friday, the University of Michigan’s (UoM) Consumer Sentiment for November fell to a four-month low, from 59.5 to 54.7.

According to the UoM research, they predict inflation to rise from 2.9% to 3% over the next five to ten years, but 5.1% over the next year. The survey’s director, Joanne Hsu, stated that such entrenchment in the future is still conceivable due to the ongoing uncertainties surrounding inflation forecasts.

The traders’ response to the UoM poll was overshadowed by last Thursday’s CPI news. On Friday, the EUR/USD continued to rise after falling to its daily low of 1.0163 and then rising to its daily high of 1.0364.

Euro and USD Investors Heavily Pricing in a 0.50% Rate Hike from Us Fed

Investors are starting to factor in a Fed that is less “hawkish.” The CME FedWatch Tool demonstrates that following the release of US inflation statistics, money market futures are still pricing in a 50 basis point rate increase, with the probability hovering around 80.6%.

In line with expectations, the CPI in Germany for the Eurozone (EU) grew by 10.4% annually. The German Harmonized Index of Consumer Prices (HICP) increased by 11.6% year over year in October, as predicted, but by 0.7% more than in September.