At the start of the day, the euro interrupted its impressive 3-day rally. The single currency gave way to the dollar, but it looks like it won't last for long. Today, the euro can demonstrate another leap.
EUR/USD broke off a 5-week high in early Asian deals and dropped sharply to 1.0740 under pressure from a stronger dollar.
Recently, the greenback has moved predominantly downward as markets have seen renewed demand for risky assets.
Also, the greenback's growth was hampered by mild inflation data and low economic growth in the United States.
Given these factors, the market began to doubt the hawkish intentions of the US central bank, which provided significant support to the euro.
However, this morning the alignment of forces on the currency front suddenly changed towards the dollar. The greenback received a boost from the comments of Fed Board of Governors Christopher Waller.
The official said he thought it reasonable to raise interest rates by 50 bp. until there is a significant decline in the US consumer price index.
Concerns that the Federal Reserve will not deviate from its hawkish path in the coming months have taken some of the pride off the euro, which hit an intraday high of 1.0780 yesterday.
In just a couple of hours, the EUR/USD pair fell by 0.3%. Despite this, the euro is set to show the largest monthly increase in a year. It rose against the dollar by more than 2% in May.
Today, analysts expect the single currency to continue intensive growth. Springboard for the euro should be the publication of the EU consumer price index for May.
According to forecasts, the indicator will rise to 7.7% against the April value of 7.4%. However, there is an opinion that growth may be much higher than economists' estimates.
This is indicated by a sharp surge in annual inflation in Germany and Spain.
According to preliminary data from Destatis, consumer prices in Germany, harmonized with EU standards, soared in May to the highest level in almost 50 years - 8.7%, while an increase to 8.0% was expected.
Exceeded the forecast and the annual consumer price index in Spain. It also jumped to 8.7% against the expected 8.03%.
Inflation data from these countries is suggesting to investors that they should brace for a higher CPI across the euro area.
In addition, the euro may receive additional support from European Central Bank officials. Tonight, officials will discuss the prospects for raising interest rates in the euro area.
Recall that the ECB plans to start tightening its course in July. Strong inflation data may increase the hawkish mood of the ECB and thus support further growth in the EUR/USD pair.
In addition to these factors, the pair will continue to grow as investors return to risk. As China eases lockdown restrictions, demand for the protective dollar is falling, which also benefits the euro.
