EUR/USD Daily Chart Analysis 26682

The EUR/USD pair climbed to a 1-1/2-month high on Wednesday, bolstered by surprising U.S. economic data that may encourage the Federal Reserve to take a more dovish approach. April’s U.S. consumer prices rose by only 0.3%, falling short of the expected 0.4% increase, which alleviated fears of runaway inflation. Furthermore, April’s retail sales and downward revisions for March indicated a potential slowdown in the U.S. economy. The New York Fed’s May business conditions index reinforced this sentiment, coming in at -15.6, compared to the -10.0 forecast and April’s -14.3. Consequently, Treasury yields saw a sharp decline, with investors increasingly anticipating a Fed rate cut ahead of the U.S. election. According to the CME’s FedWatch Tool, the likelihood of a July rate cut rose to 30% from 27% on Tuesday, while the probability for a September cut increased to nearly 70% from around 65%.

Fed Chair Jerome Powell’s statement that a rate hike is not the next move, along with the day’s economic data, may nudge policymakers towards an earlier rate cut. This potential shift could diminish the dollar’s yield advantage over the euro, aiding the EUR/USD rally towards the 1.1050/1.1100 range. The market’s response highlights the keen sensitivity to economic data and the Fed’s policy direction, showcasing the intricate balance between inflation, growth indicators, and monetary policy expectations. As the Fed leans more dovish, the euro may continue its upward trajectory against the dollar, building on its recent gains.