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European session review: USD edges higher ahead of U.S. April CPI data

TimeCountryEventPeriodPrevious valueForecastActual
06:00GermanyCPI, m/mApril0.8%0.4%0.4%
06:00GermanyCPI, y/y April7.4%7.2%7.2%

USD firmed slightly against most major rivals in the European session on Wednesday as investors looked for the U.S. Consumer Price Index (CPI) data for April later in the day, hoping to get clues on the Federal Reserve’s future rate moves.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, edged up 0.11% to 101.72.

According to economists’ estimates, the headline CPI is expected to rise 5.0% y/y, matching March's advance. Meanwhile, the core CPI, which excluded the costs of food and gas, is forecast to increase 5.5% y/y, decelerating slightly from 5.6% y/y in the previous month. Both readings would remain well above the Fed’s inflation target of 2%.

Announcing its policy decision last week, the Fed signaled a potential pause in its rate-hiking cycle after the 10th consecutive rate increase but noted that its further policy moves would depend on the incoming data.

Hotter-than-expected CPI figures, combined with strong wage growth data, which were revealed in Friday’s job report, would add to the risks that the Fed might hike its rates one more time at its next meeting in mid-June. On the contrary, cooler-than-anticipated prints would support the case for a halt in the Fed’s tightening camping.  

Ahead of the release of the April CPI data, markets see a 78.8% probability the U.S. central bank will leave its interest rates unchanged next month.

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