- EUR/USD reverses course as the US Dollar strengthens following the release of the US Michigan survey data for May.
- US 12-month consumer inflation expectations jumped to 7.3% from 6.5% in April, signaling persistent inflationary pressures.
- ECB’s Kazaks advocated for additional interest rate reductions, diverging from the Fed’s stance.
EUR/USD declines to approximately 1.11500 during North American trading hours on Friday. The primary currency pair is weakening as the US Dollar (USD) gains traction, recovering from earlier losses after the publication of the preliminary United States (US) consumer sentiment and inflation expectations data for May. The shift in sentiment underscores the dollar’s sensitivity to key economic indicators.
The US Dollar Index (DXY), which measures the Greenback’s performance against a basket of six major currencies, ascends above the 101.00 mark. This upward movement reflects renewed confidence in the US Dollar amid concerns about inflation and potential Federal Reserve policy responses.
Preliminary one-year Consumer Inflation Expectations have risen sharply to 7.3% from the previous reading of 6.5%. This significant increase is a crucial factor that could deter the Federal Reserve (Fed) from considering interest rate cuts in the near term. The elevated inflation expectations suggest that inflationary pressures may be more persistent than initially anticipated. Fed officials have consistently argued for maintaining current interest rate levels, citing concerns that the existing level of tariffs, while reduced, is still contributing to inflationary pressures. This stance is further complicated by global trade dynamics. As a reminder, on Monday, Washington and Beijing reached an agreement to reduce tariffs by 15% for a period of 90 days. This agreement was aimed at easing trade tensions and potentially mitigating some inflationary pressures, but the impact on consumer expectations appears to be limited thus far. Market analysts will be closely monitoring upcoming Fed statements and economic data releases to gauge the central bank’s future policy decisions in light of these developments. The higher-than-expected inflation expectations data will likely fuel debate among policymakers regarding the appropriate course of action to maintain price stability without hindering economic growth.
