After the release of scorching inflation data, the dollar nudged higher in early European trade Wednesday, while the euro traded around a five-week low on worries that the war in Ukraine might drag on for a long time.
The Dollar Index, which monitors the greenback against a basket of six other currencies, was 0.2 percent higher at 100.485 at 2:55 a.m. ET (0655 GMT). The announcement of the consumer price index in the United States met predictions, with prices rising 8.5 percent from a year ago in March, the highest rate since 1981, bolstered by the rising cost of gasoline. The core CPI, which excludes volatile energy and food costs, however, came in below expectations, at 6.5 percent. As a result, it’s possible that the Federal Reserve won’t need to be as forceful in the second half of the year as some had anticipated.
Early Wednesday, the benchmark 10-year U.S. Treasury yield was 2.765 percent, down from a three-year high of 2.836 percent before the inflation report. The EUR/USD fell 0.1 percent to 1.0818, just above a fresh five-week low, as Russian President Vladimir Putin vowed to keep the invasion going, claiming that peace negotiations with Ukraine had reached a “dead end.”
Impact of War on Financial Markets
The conflict in Ukraine has had a significant impact on European attitude, with the German ZEW economic research agency reporting on Tuesday that its economic sentiment index had dropped to -41.0 points from -39.3 in March.
On Thursday, the European Central Bank will convene, and it will face the challenge of reconciling rising consumer prices with these economic headwinds. Money markets are pricing in around 70 basis points of interest rate tightening by December, even though no rate rises are predicted at this meeting.
GBP/USD slipped 0.1 percent to 1.2986 as statistics indicated that UK inflation hit a 30-year high in March, with the annual rate of consumer inflation rising to 7.0 percent, up 1.1 percent month-on-month. The Bank of England has raised interest rates three times in a row, reaching levels above those seen before the epidemic, yet this has did not influence the country’s mounting cost-of-living issue.