Euro surges on US inflation figures

The Euro surged against the dollar in yesterday’s trading session, hitting a fresh two-month high following the release of U.S. inflation data for October which may have brought to an end the aggressive rate hiking cycle currently underway by the US Federal Reserve.

U.S. CPI inflation rose 3.2% in the year to October, which was less than the 3.3% figure predicted by a majority of analysts and well below last months figure of 3.7% boosting a narrative that the Federal Reserve has done enough to keep inflation moving towards the 2.0% target.

The all-important core CPI inflation figure stood at 4.0% year-on-year in October, below expectations for an unchanged reading of 4.1% from September. Month-on-month core read at 0.2%, down on September's 0.3%, which is also what the market was looking for.

Money market pricing reveals investors now assign less than a 10% chance the Fed will raise interest rates beyond the existing 5.25%-5.50% range. The odds of a further hike by January were as high as 28% ahead of the inflation release, and the market now fully prices the first Fed cut for the June 24 meeting.

The Euro was also helped by some strong economic numbers out of Europe as German investor morale improved more than expected in November, entering positive territory for the first time since April, the ZEW economic research institute said yesterday.

The institute's economic sentiment index rose to 9.8 points from -1.1 points in October, and well above analysts predictions for a figure of 5.0 points.

."While investors’ assessment of the current situation remained at extremely poor levels, they have nevertheless turned optimistic about the outlook for the German economy. This is what the latest ZEW survey pointed out, which is based on about 300 German institution investors and analysts. They also grew more optimistic about the Eurozone’s outlook than the month before," said Fawad Razaqzada, an analyst at City Index.

Looking further ahead today, the main drivers of the EUR/USD will be the release of Industrial production figures from the Eurozone which will be followed up later in the American session with the latest retail sales figures from the US and may add to the case for the Fed to start laying the groundwork for a potential rate cut.