EUR/USD Rises as Soft U.S. Inflation Data Boosts Expectations of Fed Rate Pause

The EUR/USD pair is recovering ground on Wednesday amid broad-based dollar weakness on the back of softer-than-expected US inflation figures.  

At the time of writing, the EUR/USD pair is trading at the 1.0980 area, recording a 0.13% daily gain following two declines in a row.  

The US dollar came under pressure on Wednesday and retreated versus most competitors after the Consumer Price Index inflation came in lower-than-anticipated, further cementing expectations the Federal Reserve would pause the tightening cycle next month.  

The consumer inflation rate came in at 0.4% in April, while the annual rate printed 4.9%, below the 5.0% expected. Core annual inflation, which excludes volatile items such as food and energy, eased to 5.5% in the same period from 5.6% the previous month.  

According to the CME FedWatch tool, the probability of the Fed pausing in June has increased to nearly 87% after the inflation report, while the chances of a rate cut in July rose to above 36%. Dovish expectations weighed on US Treasury yields and, therefore, on the dollar.  

Germany also reported CPI figures earlier on the day, which showed annual inflation steady at 7.2% in April. In contrast to the Fed, the European Central Bank (ECB) is seen raising rates once again at the next meeting.  



From a technical perspective, the EUR/USD pair holds a neutral short-term outlook, as indicators have turned flat on the daily chart, while the price remains capped by the 20-day SMA but trades well above the 100- and the 200-day SMAs.  

The pair needs to recover the 1.1000 level to improve the technical picture, targeting last week’s highs near the 1.1100 level. On the flip side, the immediate support area is seen at the weekly low of 1.0940. Loss of this level could add bearish pressure on the pair, exposing the 1.0900 zone.