Following news on Wednesday that U.S. consumer price inflation rose to a more than 40-year high in June, the dollar reversed course from a 20-year high, and the euro returned above parity after a brief fall below.
The highest increase in more than four decades in annual consumer prices in the United States occurred in June, forcing Americans to dig even deeper to pay for gas, food, healthcare, and rent.
“The figure for this morning is astoundingly high. It exceeds expectations and demonstrates that inflation is moving swiftly against expectations “Chris Zaccarelli, the Independent Advisor Alliance’s chief investment officer, said.
Following the release of the data, the euro fell to $0.9998 against the dollar, its lowest level since December 2002, before recovering to close at $1.0061.
The $1 region is thought to provide support for the euro.
Before tumbling back to 107.95, the dollar index rose to 108.59, its highest level since October 2002.
The region is experiencing an energy crisis brought on by sanctions put on Russia as a result of its invasion of Ukraine, which is hurting the euro.
Lou Brien, a market strategist with DRW Trading in Chicago, stated that “the sanctions that are meant to penalise Russia are also hurting the European Union.” “They are already going through a difficult time recovering from the pandemic, but this new layer of difficulty also makes the euro less appealing.”
Since Nord Stream 1, the largest single pipeline supplying Russian gas to Germany, started its annual maintenance on Monday, worries about Europe’s future have risen. Governments, markets, and businesses are concerned that the shutdown may last longer due to the conflict in Ukraine.
Additionally, the Federal Reserve is anticipated to increase rates more than its counterparts, notably the European Central Bank.
After the inflation print, traders increased their wagers that the US central bank would increase interest rates by 100 basis points during its meeting on July 26–27. It is believed that a rise of at least 75 basis points will occur.
Raphael Bostic, president of the Atlanta Fed, stated on Wednesday that policymakers may need to take a 100 basis point hike into consideration at the meeting due to the higher-than-anticipated June inflation.
At its meeting on July 21, the ECB is anticipated to increase rates for the first time since 2011.
It’s doubtful that the euro’s decline will affect the rate path. Despite not having a set target, the ECB is keeping an eye on the euro exchange rate because of its effect on inflation, according to an ECB spokesperson.
The Bank of Canada surprised the markets by increasing its benchmark interest rate by one full percentage point, the largest increase since 1998, which helped the Canadian dollar.
Dollar jumps, euro breaks parity after consumer prices surge https://t.co/AenyjPJasu
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