Euro hovers around 17 month high

The Euro is trading in a tight range against the US dollar as we get ready to enter the European trading session after last weeks gains which pushed the European currency to its highest level in more than 16 months against the greenback. This is on the back of rising expectations that the US federal Reserve make be on the verge of ending their post Covid 19 pandemic rate hiking cycle due to a sudden fall in inflation.

Following on the heels of Wednesday’s US CPIs, the PPI report for June revealed that producer prices barely rose in June, with the headline rate falling to 0.1% year-on-year from 0.9% in May.

Although the nearly stagnant headline print could be largely attributed to the negative y/y change in oil prices, the underlying rate that excludes food, energy, and transportation, slid as well, to 2.6% y/y from 2.8%.

At the same time, the Labor Department reported that initial claims for unemployment benefits unexpectedly fell by 12k last week, which may have been the reason behind the brief positive reaction in the US dollar at the time of the release before investors fully digest the PPIs and aggressively sell the currency thereafter.

Analysts are now pencilling in a maximum of one more rate hike from the Fed which is expected to occur this month while On the other hand, the European Central Bank’s (ECB) June policy meeting revealed on Thursday that a minimum of two rate hikes are needed for inflation projections to materialize to continue pushing the rate towards the central bank’s target rate of 2 percent.

Looking further ahead today, there is no major economic news to drive the EUR/USD currency pair so the major focus will be on a monetary speech by ECB president Christine Lagarde where the focus of investors will be further interest rate hikes.

Their may not be much action in the currency pair until tomorrow when we see the release of retail sales figures from the US which may confirm the need for the Fed to discontinue the current rate hiking cycle.