EURUSD rebound from parity, risk-off impulse still solid ahead of US CPI

The EURUSD pair has picked parity as immediate support in the early Tokyo session after a corrective move from around 1.0100. The asset sensed selling pressure as the market turned cautious ahead of the US Consumer Price Index (CPI) release.

S&P500 sensed an intense sell-off amid headwinds of the US mid-term elections outcome and upside risks from the inflationary pressures as they can move north despite projections for a decline. Meanwhile, the US dollar index (DXY) rebounded firmly to 110.50 amid an improvement in safe-haven’s appeal.

The 10-year US Treasury yields witnessed a steel fall below 4.10% as odds are favoring a rate hike of 50 basis points (bps) by the Federal Reserve (Fed) in its December monetary policy meeting, according to the CME FedWatch tool.

Economists at ABN AMRO are predicting that the Fed will shift its peak higher than the projected terminal rate to 5% (with a 25 bps rate hike in the first two monetary policies in CY2023 after a 50 bps rate hike in December). However, the Fed will also look for cuts from September and those cuts will be steeper once macro conditions in the US allow for this.

Going forward, the headline US CPI is seen lower at 8%, and the core inflation that excludes oil and food price growth would drop marginally to 6.5%.

On the Eurozone front, the inflation rate is in the double-digit figure and is hurting the households’ sentiment. A survey conducted by the European Central Bank (ECB) of consumer expectations for inflation dictates that consumers still see inflation at 3% in three years and 5.1% over the next 12 months.