Currency markets are waiting. Euro to Dollar is trading near $1.14 as currency markets wait for today’s CPI report. Yen is near 40 year lows. Dollar is winning across the board and has been for months. CPI report today is the next thing that could actually move something.
Euro to Dollar Holds Near $1.14 Ahead of CPI
EURUSD is sitting in a tight range around $1.1380 to $1.1400 Tuesday morning. Barely moving. Traders holding positions and waiting for CPI rather than making new bets before the data lands.
Zoom out though and the story is clearer. Euro peaked just below $1.21 in late January. Now sitting near $1.14. That is roughly 6% lost against the dollar in about six months. Slow steady decline that reflects one persistent reality. US interest rates are higher than European rates and money follows yield.
That dynamic has not changed. Federal Reserve is talking about more hikes. ECB is moving more cautiously. As long as that gap stays wide the dollar stays supported and euro stays under pressure.
US Dollar Strength Continues Across Major Currencies
This is not a euro specific story. Dollar is winning across every major currency pair.
British pound is in a broader downtrend near $1.34. Has bounced about 1.5% recently from some political reshuffling in the UK but the overall direction is still lower against the dollar. Bank of England held rates last month. Inflation in the UK is cooling. Neither of those things gives the pound a strong reason to rally against a dollar backed by potential rate hikes.
Yen is the worst of all. USD/JPY still above 162. Near 40 year lows. Bank of Japan raised rates to 1% and it barely moved the pair because the gap between Japanese and American rates is still enormous. Finance Minister comments about pension fund reallocation gave yen a 100 pip bounce last week but the pair drifted right back. Dollar bulls keep winning that battle.
Broad dollar strength rather than specific weakness in individual currencies. Different problem to solve than if just one currency was struggling.
Fed Rate Hike Expectations Continue to Support the US Dollar
Fed Governor Christopher Waller said this week that another rate hike should remain on the table if inflation does not cooperate. That comment matters because it shows the hawkish view inside the Fed is not going away.
Waller also noted that core inflation which strips out food and energy prices had already been climbing before the recent oil shock. That is the concerning part. Oil moving higher from the Iran situation is an obvious inflation driver. But underlying core inflation was already moving up before oil jumped. That suggests the inflation problem is not just energy related.
Market is currently pricing in less than 50% probability of a July rate hike. CPI today will move that number in one direction or the other. Hot number pushes probability higher and gives dollar another leg up. Cool number takes some pressure off and gives non-dollar currencies breathing room.
How the CPI Report Could Move the Euro to Dollar Exchange Rate
Economists expect June annual inflation to ease to 3.8% from 4.2% in May. That would be a meaningful step down and would be read as the disinflationary trend continuing despite oil volatility.
Problem is oil has moved significantly higher since June ended. Iran situation escalated. Blockade proposals. Fresh strikes. Brent crude near $79. That happened after June data was collected but it feeds into July and August expectations. Even if June CPI comes in at 3.8% as expected the forward picture looks more inflationary than it did a month ago.
So even a soft CPI print today might not give dollar bears much to work with. One good month of data against a backdrop of rising oil and active military escalation is not enough for the Fed to signal it is done.
Hot CPI above 3.8% would be more straightforward. Dollar rallies. Rate hike probability jumps. Euro tests lower levels. Yen gets closer to intervention territory. Chain reaction plays out quickly across FX.
For euro specifically breaking out of the $1.13 to $1.15 range in either direction probably requires something more decisive than a single CPI print. Structural dollar strength from rate differentials takes time to unwind. Until the Fed actually pivots or signals it is done tightening the path of least resistance for EURUSD remains downward.