Euro holds mild gains above 1.1200 as US Dollar drifts with US CPI on tap

EUR/USD holds just above 1.1200 after bouncing from 17-month lows near 1.1150 earlier this week.
The Euro recovery is more due to US Dollar weakness ahead of the release of US inflation data than to EUR strength.
High Oil prices and ongoing concerns about France's fiscal stability are acting as headwinds for Euro rallies.

The Euro (EUR) is showing a frail recovery against the US Dollar (USD) on Tuesday, due more to the Greenback’s weakness ahead of the release of the US inflation data than to any noticeable Euro strength. The EUR/USD pair hovers just above 1.1200, after bouncing from 17-month lows near 1.1150 earlier in the week, although it maintains its broader bearish structure intact.

The US Dollar is trimming recent gains against its main rivals on Wednesday, as investors brace for the release of September’s US Consumer Price Index (CPI) figures. Consumer inflation is expected to have accelerated to a 3.6% year-over-year (Y-o-Y) growth from 3.4% in August, with core inflation showing a more moderate uptick to 2.5% from 2.4% in the previous month.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Fed tightening expectations are the main driver for the US Dollar

Apart from that, the Federal Reserve’s (Fed) Vice Chair of Supervision, Michelle Bowman, is due to speak at the IMF Annual Summit in Bangkok and might provide further clues about the central bank’s monetary policy. On Tuesday, the influential New York Fed President, John Williams, played down market speculation about further interest rate hikes in 2027, putting additional pressure on the US Dollar.

The common currency, on the other hand, faces serious headwinds, namely the high Oil prices and the ongoing concerns about France, which so far are capping any recovery attempt. European Central Bank (ECB) President Christine Lagarde urged the French government to consolidate its fiscal policy and discarded any intervention in bond markets to alleviate pressure on French debt.

Eurozone data released on Wednesday added to evidence of the inflationary impact of high energy prices, keeping pressure on the ECB to tighten its monetary policy further. German Wholesale Price Index accelerated to 1.9% in September from 0.9% in August, against expectations of a moderate slowdown to 0.7%. In Spain, the Harmonised Index of Consumer Prices (HICP) has grown at a 0.6% pace in September and 5% year-on-year, unchanged from the previous month. The impact of these releases on the Euro has been marginal.

Economic Indicator

Consumer Price Index (MoM)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The MoM figure compares the prices of goods in the reference month to the previous month.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve (Fed) has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

Economic Indicator

Consumer Price Index (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.