The Euro maintains recent gains near 1.1230 as investors weigh geopolitical relief against expectations for accelerating US inflation and a hawkish Federal Reserve.
Reports of advances in diplomatic efforts to end the Middle East conflict pushed oil prices to fresh two-month lows, with Brent down more than 20% in the last week. US President Donald Trump also discarded any attack on Iran while negotiations continue, reducing supply-risk premium. Continued diplomacy argues for further downside risk for the barrel.
US inflation is expected to accelerate to 3.9% YoY in October, core to 2.8%, after strong October employment growth and 3.4% annualised Q3 GDP. Economists at Brown Brothers Harriman say robust activity, a strong labour market and sticky inflation support the Fed's hawkish bias, keeping rate differentials supportive of the Dollar, though the greenback pared some of Friday's payroll gains on Tuesday.
The pair bounced from 1.1137 to around 1.1230 on risk-on sentiment and a 20%+ weekly drop in Brent easing pressure on Eurozone oil importers. However, consensus points to US CPI accelerating to 3.9% YoY and core to 2.8%, which would reinforce Fed hawkishness and favour the Dollar, capping the pair. Support from geopolitics and headwinds from expected Fed tightening roughly cancel out.
The Euro trades near 1.1230 against the US Dollar as markets await October US CPI data, projected to hit 3.9% year-over-year. While the Euro finds support from a 20% weekly decline in Brent oil prices and easing Middle East tensions, the broader outlook for the Dollar remains bullish due to strong Q3 GDP growth of 3.4% and a robust labor market.
Brent has dropped more than 20% in the last week as diplomatic efforts to end the Middle East conflict advanced and the US President discarded any attack on Iran while negotiations continue, easing supply fears.
Headline CPI is expected to accelerate to a 3.9% year-over-year rate in October, the highest in five months, with core at 2.8%. Higher inflation typically leads the Federal Reserve to keep policy tighter, which supports the Dollar.
The Euro drew support from a risk-on market start to the week on diplomatic progress in the Middle East and a more than 20% weekly drop in Brent oil, which relieves Eurozone oil-importing economies.