The EUR/USD currency pair settled below Friday’s high of 1.1754, its strongest level since September 22nd 2021, as market players wagered that the Federal Reserve would likely lower interest rates more times and probably sooner than previously anticipated and after French and Spanish inflation figures for June outpaced market consensus.
France’s annual consumer inflation picked up to 0.9% in June, preliminary data showed, from 0.7% in May (the lowest rate since February 2021).
Spain’s annual CPI inflation picked up to 2.2% in June from 2% in May (the lowest rate since October 2024).
The data could add to speculation that the European Central Bank is moving closer to the end of its monetary easing cycle.
“Hotter French services CPI and Spain core CPI cast doubts on further ECB easing,” Kenneth Broux, head of corporate research FX and rates at Societe Generale, was quoted as saying by Reuters.
“This week for (the) September meetings we’ve gone from -20bp to -27bp for the Fed and from -11bp to -13bp for the ECB,” Broux noted.
In the US, annual core PCE inflation picked up to 2.7% in May from a revised up 2.6% in April, data by the Bureau of Economic Analysis showed.
And, annual PCE inflation accelerated to 2.3% in May from a revised up 2.2% in April.
But, US consumer spending surprisingly dropped in May as the boost from the preemptive purchases of goods such as motor vehicles ahead of tariffs waned.
Markets are now pricing in about 65 basis points of rate cuts by the Federal Reserve by the end of this year, compared to 46 basis points a week ago.
In the meantime, media reports stated that US President Trump could announce his Fed Chair nominee as early as September or October, as he would likely favor a candidate who supports looser monetary conditions.
Fed Chair Jerome Powell said this week the absence of new tariffs supported disinflation and created room for several rate cuts in case extensive levies are held off after the July 9th deadline.
The EUR/USD currency pair settled 0.14% higher at 1.1716 on Friday.
The major Forex pair gained 1.69% for the week.
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