The EURUSD saw a sharp reversal of the recent downturn, with the exchange rate surging towards the 1.000 level.
The latest Federal Reserve interest rate hike of 75 basis points initially boosted the US dollar on Wednesday and Thursday, with the pair touching solid support at 0.9750.
EURUSD Daily Chart
The week ahead will see the EURUSD focus shift back to inflation with the CPI release on Thursday morning, which is the highlight for the US economic calendar. The FOMC rate decision had a hawkish tone with a “higher for longer” tone and suggested that the FOMC will not slow down with their interest rate hikes anytime soon.
The US inflation rate on Thursday is expected to dip to 8% from 8.2%, which could help the euro gain further. Friday is also expected to see a jump in German inflation to 10.4% from 10%, which could also boost expectations for tougher action from the European Central Bank.
The head of the European Central Bank underlined the bank’s determination to fight rampant inflation with more interest rate increases on top of record hikes, saying Friday that “our job is far from being completed” and that even a mild recession would not be enough to bring rising prices back under control.
The ECB President Christine Lagarde said in a lecture that “we will not let high inflation become entrenched” by allowing expectations of higher prices to affect wages and costs, creating a spiral of higher inflation.
She said central bankers must be “prepared to take the necessary decisions, however difficult, to bring inflation back down, because the consequences of letting too-high inflation become entrenched would be much worse for everyone.”
The EURUSD will test the parity level ahead of the inflation data on Thursday and Friday.
