The EUR/USD pair is at its highest level in the last 9 months, showing the strength of the Euro against the Dollar. It seems that the current economic data from the USA is favoring a dovish outlook from the Fed and is thus pulling the US Dollar down.
In addition, the European Central Bank (ECB) has also sent signals that it will continue with its rate hike cycles. So, on the one hand, we have a bullish ECB, and on the other hand, we have reports pointing towards a dovish Fed.
The EUR/USD pair was last seen trading around $1.0862, with an increase of 0.7% for the day. Earlier, the EUR/USD made a high of $1.0887, only to retreat a little bit.
The recent development in the EUR/USD is coming at a time when we are getting inflation data reports from the USA. As per the reports, the price inflation in the USA was a lot weaker than the market expectations. On top of that, the retail sales data was also disappointing, which will also cool down the inflation.
But this data is also an indication that the US economy is slowing down and thus will also affect the US GDP growth rate.
In addition, the US bond yields also dropped sharply after the inflation data, which also had a negative effect on the US Dollar.
The 2-year US bond is usually deemed to be highly correlated to the interest rate policy of the Fed. And recently, it also dropped by 9 basis points and reached a value of 4.11%. According to experts, this is the lowest level since the start of October. And the 10-year bond, which is tied with the long-term inflation in the USA, also dropped and reached 3.40%.
If the inflation in the USA further cools down, it will be bad news for the US Dollar. On the contrary, US equities will benefit from a weaker US Dollar and may stage a recovery in 2023!