EUR/USD traders await FOMC minutes for direction

The US Dollar index, DXY, was last at 101.51, down 0.62% on the day, while the EUR/USD reached 1.0999, the highest level since February 2. The pair last traded at 1.0995, up 0.79% on the day.

The US dollar plunged on Wednesday after data revealed that the US Consumer Price Index climbed less than anticipated in March, and short covering in the EUR currency has continued into the middle of the week. The Federal Reserve is expected to stop raising rates after a probable increase in May and perhaps change course before the end of the year, according to traders.

In contrast to the 0.4% increase in February, the CPI increased by just 0.1% last month, falling short of the 0.2% growth predicted by economists. The CPI grew 5.0% in the year ending in March, the smallest year-over-year gain since May 2021. In February, the CPI increased 6.0% on an annualised basis. After increasing by 0.5% in February, the CPI grew by 0.4% last month when the volatile food and energy components were excluded. Core CPI was however still being driven by persistently rising rental rates.


The data comes out before Friday’s US Retail Sales figures and the Federal Open Market Committee minutes at the top of the hour. The minutes will be from the FOMC meeting held on 21–22 March, when the rate hike was mostly seen to be dovish.

However, the distribution of the March dot plot for 2023 pointed to a more hawkish stance among FOMC members. The meeting minutes may highlight this hawkish stance given the ongoing high inflationary pressures, even though banking stress now seems to be somewhat managed.

The probability that the Fed would increase rates by an additional 25 basis points at its meeting on May 2-3 is currently priced in at 69%, down from about 76% before the data release.