Euro Rebounds, US PPI Limits
EUR/USD rebounded and regained ground above 1.1700 in early Asian trading on Thursday (May 14), with the pair trading around 1.1720. The euro's gains came as markets assessed that hawkish signals from European Central Bank (ECB) officials were beginning to offset the US dollar's support following hotter-than-expected US producer inflation data.
From the European side, discussions about inflation risks related to the Iran war have resurfaced. ECB Governing Council member Joachim Nagel said the probability of the ECB needing to raise borrowing costs is increasing, given the impact of the Iran war on inflation. However, ECB Chief Economist Philip Lane emphasized the need to assess the impact of the conflict on growth and inflation before making a decision, saying that the policy stance remains judgment-based.
Market expectations were also reflected in a Reuters survey. A majority of economists—around 85% of respondents—expected the ECB to raise the deposit rate by 25 bps to 2.25% in June. This percentage rose from "slightly over half" who predicted a hike before the April ECB meeting, signaling a shift in market pricing toward tighter policy.
In the US, the dollar's support came from strong wholesale inflation data. The US Bureau of Labor Statistics reported that the PPI rose 6.0% (YoY) in April, up from 4.3% in March and higher than the consensus of 4.9%, marking the hottest reading since late 2022. On a monthly basis, the PPI rose 1.4% (MoM) from 0.7% in March and well above expectations of 0.5%.
The combination of strong PPI data and rising US interest rate expectations tended to support the dollar through the yield channel, limiting the euro's upside. However, the ECB's increasingly hawkish repricing provided a cushion for EUR/USD, leaving the pair's movement more determined by the tug-of-war between ECB policy expectations and dollar strength following US inflation data.
The next focus is the release of US April Retail Sales scheduled for Thursday, which will provide additional clues on the direction of domestic demand and Fed policy expectations. The market will also monitor further comments from ECB officials and developments on energy risks related to the Iran conflict, which could potentially impact the inflation trajectory and interest rate decisions on both sides of the Atlantic. (asd)
Source: Newsmaker.id
