EUR/USD falls as PPI signals policy tightening

The EUR/USD pair has fallen to 1.0759 as US inflation data surpasses expectations, indicating sustained Fed attentiveness. January’s Producer Price Index (PPI) increased 0.3% MoM, exceeding estimates, while the core PPI also beat forecasts, jumping sharply to 0.5% MoM from -0.1% in December.

The ECB’s cautious approach to rate cuts highlights inflation worries, in stark contrast to the Fed’s inflation combat. The Euro retreats after hitting a new two-day high as a measure of inflation in the producer side of the United States, suggesting the US Federal Reserve’s job is not done.

The dollar rose as interest rate traders align with the Fed’s view of three rate cuts towards 2024. Following the data, the EUR/USD pair kept swinging around the 1.0770-1.0730 range before settling at around current exchange rates.

Treasury yields rose, while the US Dollar Index (DXY) edged up 0.22% at 104.50. Building Permits dropped -1.5% from 1.493 million to 1.47 million, while Housing Starts plummeted sharply -14.8%.

Across the EU, Germany’s wholesale prices for January rose 0.1% MoM, but annually based dropped -2.7% below December -2.6%. The European Central Bank Governing Council member Isabel Schnabel noted the central bank must be careful not to cut rates too soon and that monetary policy should remain restrictive due to fears of a rebound in inflation.