EUR/USD Surges to Fresh 2023 High Amid US Dollar Weakness

As the European session approaches, the EUR/USD pair maintains a strong bullish stance, flirting with a potential new high for 2023 around 1.1150. This upward momentum is primarily driven by a widespread weakness in the US dollar. Following the release of softer US CPI data, the pair surged to its highest level since March 2022, as the Greenback took a hit.

Building on its fifth consecutive day of gains, the EUR/USD accelerated its upward trajectory, benefitting from the US dollar sell-off. Breaking through key resistance levels, the pair achieved its highest daily close in over a year. The overall outlook suggests further potential gains, although upcoming US data could potentially slow down the rally or trigger corrective movements.

The US dollar experienced a sharp decline, propelling the EUR/USD to monthly highs. The Greenback’s tumble was triggered by the release of US inflation data, with the Consumer Price Index rising by a modest 0.2% in June, falling short of market expectations of 0.3%. The annual rate also dropped to 3%, marking its lowest level since March 2021. Furthermore, the Core rate decelerated more than anticipated, dipping from 5.3% to 4.8%. While market participants still anticipate a rate hike by the Federal Reserve in July, these figures renewed optimism as they indicated the possibility of it being the final hike.

This decline in the US dollar led to a drop in Treasury yields and a rally in Wall Street stocks. The positive risk sentiment further weakened the US dollar’s position. Looking ahead, the market will be attentive to the release of the US Producer Price Index on Thursday, which could either provide evidence of softer inflation or point to a sticky situation.

Additionally, Thursday will see the European Commission unveil its economic forecast and May’s Industrial Production data. The Eurogroup will also hold a meeting, and the European Central Bank (ECB) will release the minutes of its latest meeting. As recent price action and the repricing of expectations for the Fed and ECB persist, volatility is expected to remain high during the next session. Consequently, the EUR/USD pair remains vulnerable to both further gains and significant corrections.