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Title : Dollar Edges Higher, Euro Clings to Parity Ahead of U.S. CPI Release

Jul 13, 2022 03:09AM ET

By: AnalysisWatch

The US dollar rose in early European trading Wednesday, while the euro languished near parity ahead of the release of key US inflation data that could cement further rate hikes by the Federal Reserve.

The figure is likely to reinforce expectations of further interest rate hikes by the Fed, on top of the sharp 75 basis point increase that central bank policymakers authorized in June, the largest increase since 1994, to the further benefit of the dollar.

The single currency is being hit by concerns about a potential energy supply shortage if Russia further curbs gas exports to Europe, which would further weaken the eurozone's growth outlook and could prompt a blip from the European Central Bank, which had been targeting rate hikes in the summer.

In a note, analysts at ING point out that the question now is whether the [EUR/USD] pair can find some support and stage at least a mini-rebound, or break below parity. "Looking at the global economic outlook, we think the second option remains more likely, and even if we think a return to 1.0500 in the fall remains a tangible possibility, a short-lived decline to 0.9800-0.9900 in the coming days seems relatively likely."

Meanwhile, eight Conservatives will battle to succeed Boris Johnson as party leader and British prime minister after securing enough nominations from their colleagues to make it through to the first round of voting on Wednesday.

"We believe the impact on sterling from the leadership contest will remain limited," ING added. "GBP/USD remains strictly linked to dollar movements and external factors, and a further drop to the 1.16-1.17 area cannot be ruled out at this time."

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