Euro Stalls As Fed Hike Bets Offset Cooler Eurozone CPI

The Euro fails to gain traction versus the US Dollar on Tuesday, with the pair remaining steady at around 1.1400 as economic data on both sides of the Atlantic barely moved the needle. The EUR/USD trades at 1.1420.

EUR/USD holds near 1.1400 as Fed and ECB signals diverge

Geopolitical fears are tempered as the US and Iran are set to continue negotiations. Therefore, risk appetite improved as depicted by US equity markets, which ended the first half and the second quarter of the year on a higher note.

Speculation that the Federal Reserve will raise interest rates boosted the Greenback during the session. The US Dollar Index (DXY), which measures the buck’s performance against a basket of six peers, is up 0.06% at 101.17.

Money markets have so far priced in 35 basis points of policy tightening towards the end of the year, but for the July meeting, there’s a 66% chance of a hold, according to Prime Terminal data. Nevertheless, for the September 16 reunion, there’s 82% chance that the US central bank could hike rates to the 3.75%-4% range.

On Tuesday, the US economic docket revealed that job vacancies unexpectedly jumped in May, with further insights reaffirming the low-hiring, low-firing environment in the labor market. At the same time, the Conference Board Consumer Confidence nudged higher in June, despite Americans becoming worried about the jobs market.

Cleveland Fed President Beth Hammack stated on Tuesday that she might still support higher interest rates if inflationary pressures do not ease.

Thursday's June jobs report is the key US economic event. Three months of strong job gains have reinforced the hawkish stance of the Fed. Economists expect that the economy added 110K jobs in June, with unemployment steady at 4.3%.

ECB expected to hold rates in July

Across the pond, inflation data in France, Italy and Germany were cooler than expected, a headwind for the Euro.

In the meantime, European Central Bank (ECB) officials crossed the wires. The Chief Economist, Philip Lane, said that the bank should not pre-commit to a specific meeting in July or September, but remained vague. ECB’s Dolenc strives for patience and wants to wait until September

Other members, like Kazaks, said that there’s no need for a forceful inflation response, while Nagel said that “it’s too early to call for further rate hikes.” Rehn was neutral, while Wunsch supports another rate hike.

Money markets had priced in a nearly 60% chance of another 25 basis points of rate increases by the ECB at the September meeting. In July, the central bank is expected to hold rates unchanged.