- EUR/USD consolidates the upside before the next leg higher, US data eyed.
- The US dollar licks hotter US inflation-inflicted wounds amid an upbeat market mood.
- FOMC minutes point to November taper, US CPI brings forward rate hike expectations.
EUR/USD is trading close to 1.1600, gathering strength for the next push higher. The US dollar licks hotter US inflation-inflicted wounds amid an upbeat market mood.
The main currency pair holds the recent advance, currently trading 0.05% higher at 1.1595, as the bulls catch a breather after Wednesday’s 70-pips surge. The rebound in the US Treasury yields across the curve helps cushion the downside in the greenback, capping EUR/USD’s upside for now.
Further, the gains could remain limited, as investors will continue to weigh in the divergent monetary policy outlooks between the Fed and ECB.
Hotter US CPI downs the dollar
On Wednesday, the major staged an impressive comeback from near 15-month lows of 1.1524 and briefly tapped the 1.1600 level.
The pair surged after the hotter-than-expected US Consumer Price Index (CPI) brought forward the Fed’s rate hike expectations and triggered a sharp sell-off in the longer-dated Treasury yields alongside a dollar squeeze. The US annualized CPI rose to 5.4% YoY in September vs. 5.3% expected while the Core CPI steadied at 4% YoY.
The spot extended the break higher on the FOMC minutes release, as markets resorted to ‘sell the fact’ trading in the dollar after the September meeting’s minutes revealed that the Fed officials are prepared for a gradual taper, which is expected to “in either mid-November or mid-December.
Looking ahead, the pair will await the US Producers Price Index (PPI), the weekly Jobless Claims and Fedspeak for fresh trading impetus. In the meantime, the Fed sentiment and dynamics in the yields and the buck will be closely followed.