The rapid cooling in inflation in the USA which caused a selloff on the greenback last week and the hawkish stance of the ECB have helped Euro to climb as high as $1.1250 against the dollar on Monday morning, posting a fresh 16-month high.
Forex investors sold greenback in favor of the Euro and other major growth-led currencies last week as the softer-than-expected inflation readings in June; CPI-consumer prices eased to 3% vs 4% in May and 3.1% expected on Wednesday, while the PPI-producer prices dropped 0.1% vs 0.2% expected on Thursday, have raised expectations the Federal Reserve may be close to ending its aggressive rate-hiking cycle after a final increase of 25 bps on July 26. https://www.cnbc.com/2023/07/12/inflation-rose-just-0point2percent-in-june-less-than-expected-as-consumers-get-a-break-from-price-increases.html?&qsearchterm=Jeff%20cox
In this context, the world’s reserve currency suffered its worst weekly drop in 2023 so far, posting 2.2% losses last week, with the DXY-U.S. dollar Index, which tracks the greenback against a basket of six other currencies, falling marginally below the key 100 level for the first time since April 2022.
Euro has been one of the largest beneficiaries of the recent retreatment on the greenback, jumping 2.4% last week to a 16-month high of $1.1250, and recording its sharpest one-week rise since November 2022.
EUR/USD pair, Daily chart
The Euro zone’s currency has gained almost 1700 pips since bottoming at nearly $0.9550 in late September 2022, mainly due to the monetary policy divergence between the Federal Reserve and European Central Bank, and the improving economic fundamentals in the bloc after the initial shock of the Ukraine war.
The European Central Bank is widely expected to lift interest rates once more next week as inflation levels in many countries have risen lately, showing an unwelcoming resilience compared to inflation readings in the United States.
Investors will be focused on the speech from ECB President Christine Lagarde later on the day for clues into the central bank’s thinking ahead of the next policy-setting meeting near the end of this month.
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