The EURUSD exchange rate has a German inflation reading ahead, followed by a speech from the Federal Reserve Chair.
EURUSD: Daily Chart
The EUR/USD is consolidating near the 1.09 level, with resistance ahead at 1.1033.
The latest annual inflation rate for Germany is expected to come in at 6.3%, up from 6.1% a month ago. Continued price pressures in the Eurozone’s largest economy will not please European Central Bank officials after a year of aggressive interest rate hikes to tackle rising inflation.
Policymakers are meeting this week in Portugal for an annual retreat with other central bankers. Making the situation harder for the euro members are actions from the German government, with a rollout of cheap public transport and money printing leading to higher price pressures for the bloc.
ECB projections are for inflation to slow to an average of 2.2% in 2025, while the German Bundesbank’s forecast for the economy is 2.7%. The bank’s president, Joachim Nagel, is among officials pushing for continued interest-rate hikes.
“There must be a number of national central banks, including at least one major one, that are much more hawkish than the ECB and that keep pushing back on the inflation outlook,” Erik Nielsen from UniCredit said.
The President of the European Central Bank said this week that the bank is still not sure of its interest rate peak in the coming months. The euro has been rising as investors expect higher rates in the months to come.
Meanwhile, the US Fed’s recent pause on raising interest rates has spooked investors after continued hawkish comments on further rate increases. Jerome Powell’s testimony last week added to speculation that two more rate hikes were coming this year.
Analysts expect the tone to be the same in Powell’s speech tomorrow. “One of the big stories this year is that central banks continue to surprise the markets with either more rate hikes or hints of more to come,” said Bank of America economist Ethan Harris.
Germany’s inflation rate will be the more important of the two events tomorrow for potential surprise value.
