Foreign exchange: Euro barely moved ahead of US inflation data

FRANKFURT (dpa-AFX) – The euro has held its ground at an elevated level ahead of the eagerly awaited US economic data. On Wednesday morning, the common currency was trading at 1.1363 US dollars, around the same level as the previous evening. The European Central Bank set the reference rate on Tuesday at 1.1336 (Monday: 1.1318) dollars.

The euro has recently benefited from the renewed confidence in the financial markets. Investors interpreted the latest statements by Federal Reserve Chairman Jerome Powell on monetary policy as a sign of economic strength. In view of the good economic development and the high inflation rate, the latter had signaled an increase in the key interest rate for the period from March onwards.

In the afternoon, attention will then turn to new inflation data from the US. Experts reckon that consumer prices rose by 7.0 percent in December compared to the same month last year. This could increase the pressure on the Fed to tighten its monetary policy further.

However, it would take a massive surprise for the interest rate pattern that the market is making of the US to seriously shake, wrote foreign exchange expert Ulrich Leuchtmann from Commerzbank. The fact that the US Federal Reserve will raise its key interest rate quickly seems to be a foregone conclusion, even if inflation is slightly lower than expected. “In the worst case, it won’t be March, but May or June,” the expert concluded.

And ultimately, according to the Commerzbank expert, the foreign exchange market is about whether the Fed will significantly increase its key interest rate in the next few quarters and years. A rapid rate hike soon is an indicator for this, but not a basic condition./la/mis

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