The Euro sank to a 3-month low in yesterday’s trading session against the US dollar after the latest inflation figures from the US smashed predictions and raised expectations that the US Federal Reserve will need to move sooner than expected with regards to tightening monetary policy.
CPI figures in June jumped by their most in over a decade, as the US began reopening for business after a pandemic like no other and the momentum moving forward in the economy looks set to continue.
The news was enough to bring rate hike expectations forward with the first one now expected in the second half of 2022, and although seems like the distant future, the way things stand, the rate hike will be much earlier than any other developed economy.
The extraordinary leap in inflation figures has brought more significance to Fed Chair Jerome Powell’s testimony before US congress on Wednesday where he will be expected to lay out the Central banks plans on a reduction of stimulus measures and higher interest rates.
Mr Powell has reiterated in the recent past that higher inflation will be temporary and it will be interesting to see if he sticks to the same story in light of the current news.
After running into resistance in yesterday’s trading session at $1.1860 the Euro came crashing down after the release of the inflation figures from the US and broke through two significant support levels at $1.1820 and $1.1795.
The Euro/USD opened the Asian trading session below the $1.1795 former support level which now acts as a resistance level and is likely to hold as the market awaits the speech to congress by Fed president Powell.
A bullish tone by the Fed president may see the $1.1750 resistance level first hit 3 months ago come into focus followed by a move towards the $1.1709 resistance level if that fails to hold.