EURUSD Posts Fresh Highs As Investors Feel Confident In The Euro

The euro currency was seen recovering from the slump last week as price action once again posted a strong reversal with the common currency seen testing a fresh three year high last week.

As the EURUSD posts fresh highs it’s viewed that gains in the EURUSD came about as economic data from both sides continued to paint an upbeat picture. However, the prospects that the euro area economic recovery continues to rise at a steady pace has prompted investors to bid up the euro.

Increase in CPI prompts speculation of a rate hike as early as March 2017

Last week’s data from the United States showed that consumer prices surged strongly. Headline inflation data showed an annual increase of 2.1% in January 2018 which was also supported by an uptick in the core CPI. While core PCE remains the Fed’s key gauge of inflation, the fact that core PCE often lags the CPI data shows the potential for an increase across all measures of inflation.

This was further evidenced by the fact that the U.S. PPI was also seen coming out stronger. Producer prices in the U.S. rose to an annual pace of 2.7%, beating estimates of a 2.5% increase.

Despite the upbeat numbers from the U.S., the policy uncertainties from the Trump led government has kept investor optimism in check. Following last week’s data, the futures markets responded by assigning a near 80% probability for a rate hike as early as March.

This week’s FOMC meeting minutes could potentially cement this view. However, the question still remains as to whether the new Fed Governor, Jerome Powell will kick off his first FOMC meeting with a rate hike.

Various GDP trackers in the U.S. already point to a solid above 3% growth in the first quarter of 2018 which further validates this view.

Lower economic and political risks for the eurozone

For the EURUSD, it is clear that investors prefer the common currency to the U.S. dollar which has been in a strong downtrend. While the economic risks are certainly lower, the next biggest challenge for the euro currency will be the coming Italian elections.