The USD continued to bleed this week, with the dollar index falling below 101, pushing the EUR/USD pair to the highest level since April 2022.
These USD losses followed the announcement of the US producer price index for March, which declined 0.5% from the previous month’s reading, the largest decline since the outbreak of the pandemic.
US inflation slows notably
Annually, the PPI rose 2.7% from a year ago, the smallest gain in more than two years, while the so-called core PPI, which excludes volatile food and energy components, declined 0.1% from February and rose 3.4% from a year ago. The day before, consumer prices recorded their smallest yearly rise since May 2021.
The decline in the aggregate PPI was caused by a 1% decline in the price of goods, with 80% of that decline attributable to falling energy prices. The decline was headed by an 11.7% decline in petroleum prices. After a three-month decline, food costs increased by 0.6%.
Services prices decreased by 0.3%, the most since April 2020. In this category, petroleum and lubricant retailing (-12.1%), significant appliance retailing (-9.4%), and machinery and vehicle wholesaling (-7.3%) experienced the greatest declines.
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In other news, the US Department of Labor reported a rise in weekly Initial Jobless Claims on Thursday, indicating a further deterioration in labor market conditions. The economic data increased to 239,000 from 232,000 and the previous release of 228,000. This has also reduced concerns about persistent US inflation.
“This means that the market is once again back to hoping that more bad news will tilt the Fed further towards a pause beyond the next meeting, though hopes for a ‘no change’ at the upcoming get-together remain dim,” said IG chief market analyst Chris Beauchamp.
Later in the day, the US economic calendar will feature the Import and Export Price Index, March Retail Sales, and Industrial Production figures. The University of Michigan will also disclose the preliminary Consumer Sentiment Index for April before the weekend.
EU inflation situation is not under control
Pierre Wunsch, a policymaker at the European Central Bank (ECB), stated on Friday the policy decision in May would be between 25 and 50 basis points, with the “size largely dependent on April core inflation.
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Bostjan Vasle, a member of the European Central Bank’s (ECB) Governing Council, stated, per Reuters, that the ECB is thinking about 25 and 50 basis point (bps) rate hike alternatives for the May policy meeting.
“Headline inflation is coming down, but we are all focused on core inflation, which is still moving in the wrong direction,” Vasle further noted. “This is, of course, not unexpected given the tightness of the labor market and still not fully materialized pass-through effects.”
Euro seems overbought
The EUR/USD pair has risen for three days in a row, bringing technical indicators on the daily chart close to overbought territory and indicating a possible pause in the rally.
The pair is consolidating around 1.1050 on the 4-hour chart, with technical indicators at excessive overbought values signaling that the pair may continue to move sideways. Further gains are likely as long as the price remains above 1.1000. On the upside, the 1.1095 and 1.1120 resistance levels are identified above recent highs. 1.0975 is the next support level below 1.1000.
EUR/USD daily chart, source: author´s analysis, tradingview.com