Euro selloff pauses for now, eyes on US inflation

The euro selloff that was triggered during European Central Bank President (ECB) Christine Lagarde’s press conference on Thursday seems to have taken a break early Friday. Ahead of the May Consumer Price Index (CPI) data from the US, the market mood stays upbeat with US stock index futures trading in positive territory in the European morning. There won’t be any high-tier data releases from the euro area but comments from ECB officials on the policy outlook will be watched closely by market participants.

Following its June policy meeting, the ECB left its key rates unchanged as expected and unveiled that it would hike the rates by 25 basis points (bps) in July. The bank refrained from committing to a 50 bps hike in September and lowered its growth forecast for 2022 to 2.8%. from 3.7%.

Investors forecast the annual CPI in the US to remain unchanged at 8.3% in May while expecting the Core CPI to retreat to 5.9% from 6.2%. Previewing this event, “even though Fed policy for at least the next two meetings will not be affected by the CPI results for May or June, there is considerable room for a market response depending on the deviation from forecasts,” said FXStreet Analyst Joseph Trevisani. “There are good reasons to suspect that a portion of the May oil and gas price increases were not captured in the analysts’ surveys that produce the forecasts.”

EUR/USD lost more than 100 pips on Thursday before staging a modest rebound toward 1.0650 early Friday. ECB policymaker Francois Villeroy de Galhau said earlier in the day that the ECB will gradual interest rate increases until they reach the neutral rate, which is somewhere between 1% and 2%.

USD/CAD climbed to its highest level in more than 10 days on broad dollar strength on Thursday and was last seen moving sideways near 1.2700. Statistics Canada will release its May jobs report later in the session. Investors see the Unemployment Rate in Canada staying unchanged at 5.2% with the Net Change in Employment rising by 30,000.

USD/JPY turned south during the Asian trading hours on Friday and fell below 133.50. The benchmark 10-year US Treasury bond yield is edging lower, making it difficult for the pair to gain traction.

GBP/USD extended its slide for the second straight day on Thursday and closed below 1.2500. The pair stays on the back foot on Friday.

Gold registered small daily losses on Thursday before going into a consolidation phase below $1,850 on Friday. The US T-bond yields’ reaction to the US inflation data could ramp up XAU/USD’s volatility ahead of the weekend.

Bitcoin continues to fluctuate in a tight range near $30,000 and Ethereum extends its sideways grind at around $1,800.

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