Published on 31.03.2022 12:30

The Euro has taken a breather in today’s trading session against the US dollar as the market awaits some all-important inflation figures from the US which may determine the speed and size of the US Federal Reserve’s next rate hike.

The Feds preferred measure of inflation due to be released in a few hours is expected to show a continuing increase in prices. The January core reading of 5.2% showed inflation running at its highest level since April 1983 and today’s number is expected to climb further and is expected to hit the market at 5.5%.

If the figure comes in as expected, the Fed may go ahead and hike interest rates by 50 basis points at the next FOMC meeting in May and, if these price pressures persist, they may follow up with another 50 basis point hike at the June meeting as well which will be bad news for the Euro.

There is also a chance we still may see a rate hike from the European Central Bank later in the year after comments earlier today by ECB Vice President Luis de Guindos who noted that that inflation in the euro area was expected to continue to rise over the next several months, putting further pressure on EU consumers.

"It is plausible that medium-term inflation will not revert to the pre-pandemic below-target equilibrium but, conditional on appropriately-calibrated monetary policy, rather may stabilize around the ECB’s 2% target," Mr Lane noted.

Looking further ahead today, the main drivers of the EUR/USD currency pair will be further economic news from the US such as the Initial jobless claims figure which is the prelude to the Non-farm payrolls figure due for release tomorrow.

We will also see the release of the personal spending figure, a key indicator of consumer confidence as well as a speech from US Federal Reserve board member John Williams.


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