Euro gains awaiting US inflation numbers

The Euro has managed to break a 2-day losing streak against the US dollar and is back over the 1.09 mark as market participants await the release of consumer price index figures tomorrow from the US which may well decide whether the US Federal Reserve is done with their rate hiking program.

The aggressive rate hikes from the Fed seems to be working at slowing down the US economy if we look at the release of last Friday’s jobs data. The US added 236,000 jobs in March, which was well below the 326,000 jobs that were added in February and points to a weakening labour market which will please some Fed board members who are eager to stop hiking rates over worries that this could push the US into a recession.

“The 236,000 gain in non-farm payrolls in March adds to the evidence that the economy’s strong start to the year was partly weather related, with momentum fading again,” said Andrew Hunter, deputy chief US economist at Capital Economics.

“With the sharp fall in job openings and upward trend in jobless claims also pointing to cooling labour demand, and the drag from the recent banking turmoil still to feed through, we expect jobs growth to slow more sharply soon.” He added.

With the employment market in the US now seemingly on a downward trend, the inflation figures due for release tomorrow will be all the more important are expected to hit the market on a monthly basis at 0.4 percent, down from the previous months figure of 0.5 percent.

The yearly figure is expected to come in slightly higher at 5.6 percent, up from 5.5 percent in the previous month and much lower than the 9 percent recorded last year.

A hotter-than-expected inflation reading may suggest that the Fed could still hike rates by 25 basis points once more in May and could make it difficult for the Euro to sustain any meaningful rally.

On the other hand, a weaker than expected figure will dramatically increase expectations that the Fed is done with their rate hiking a program and a rally above 1.10 could be on the cards.