EUR/USD dives post CPI data, stirs for potential Fed action

US September CPI YoY rises to 3.7%, above expectations and reviving talk of rate hikes. As the US Dollar strengthens under inflationary pressures, EUR/USD trades around 1.0550.

The neutral stance of ECB officials contrasts with probable Fed policy changes, which makes the EUR/USD dynamics more tense. Following a hotter-than-expected US inflation report, which caused the EUR/USD to go below the 1.0600 level towards the 1.0540 region at the time of writing, the Euro plunges more than 0.60% against the dollar.

As US CPI data beats expectations, the EUR/USD plunges below 1.0600, raising the possibility of Fed intervention. The Consumer Price Index (CPI) for September increased by 3.7% Yoy, beating expectations of 3.6% and remaining constant from the previous month, according to the US Bureau of Labour Statistics (BLS). The same report showed that core CPI increased by 4.1% annually, as predicted by analysts, falling short of August’s 4.3% increase. Following the release of the data, market players expected that the US Federal Reserve would hike rates before the year’s end, which caused US Treasury bond yields to increase, the US Dollar to strengthen, and equities to decline.

The probability of the Fed raising interest rates by 25 basis points by the December meeting increased from 26.3% to 35.7%, according to the CME FedWatch Tool. In addition, Initial Jobless Claims for the last week increased by 209K, below predictions of 210K, indicating that the employment market is beginning to stabilise even though it is still hot in the US.

Prior to the release of the CPI, Fed officials continued to be dovish, which may cause them to reevaluate their prior positions. Officials at the ECB’s central bank had taken a more unbiased position on issues affecting the Eurozone. German inflation data for Wednesday fell precipitously, but it is still above the European Central Bank’s 2% objective.