Euro/Dollar Declines As Greenback Climbs Sharply Amid High Inflation

12 May 2021 | Updated: 12 May 2021

On Wednesday, the euro suffered significant losses, the euro/dollar is trading at 1.2076 in the North American session, down 0.60 percent.

After much better than expected consumer inflation reports, the dollar rose sharply in the early US session. The Canadian Dollar, on the other hand, is much higher, thanks to an extended rise in oil prices. The third strongest currency is sterling, which is bolstered by stronger-than-expected GDP. The New Zealand and Australian Dollars, on the other hand, are facing the most selling pressure as the stock market sell-off resumes.

 The April inflation report sparked a lot of excitement, and it did not disappoint, with readings that were significantly higher than the consensus. US inflation was higher than anticipated, the headline CPI increased by 0.8 percent (MoM), well above the 0.2 percent forecast. In the case of Core CPI, the increase of 0.9 percent comfortably outperformed the prediction of 0.3 percent.

The headline reading was at its highest level since 2009, and the core reading was at its highest level since 1982. The Sharp Rise in CPI has pushed US 10-Year Yields slightly higher, which has lifted EUR/USD on Wednesday.

Following a Sharp Drop, the Euro/Dollar Has Settled Around 1.2070

On Wednesday, the euro/dollar pair moved sideways in a relatively tight range above 1.2100 for the first half of the day but came under heavy pressure during American trading hours. The pair was down 0.60 percent daily at 1.2076 as of writing, having hit a daily low of 1.2066.

If the selling pressure intensifies, the pair can try to re-enter the 1.2040 range, where the 100-day SMA is located. However, there is a small region of controversy about 1.2060, where the 20-day SMA and a Fibo level converge (of the November-January rally). The EUR/USD is expected to maintain its bullish bias as long as it trades above the 200-day SMA, which is currently at 1.1949.

Raphael Bostic, president of the Atlanta Federal Reserve, said on Wednesday that the United States is going through a difficult period and that inflation volatility is to be predicted. These remarks do not seem to have had a major effect on the dollar’s success against its competitors. At the time of writing, the US Dollar Index was trading at 90.73, up 0.63 percent on the day.

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Azeez Mustapha

Azeez Mustapha is a trading professional, currency analyst, signals strategist, and funds manager with over ten years of experience within the financial field. As a blogger and finance author, he helps investors understand complex financial concepts, improve their investing skills, and learn how to manage their money.