The US Dollar (USD) managed to trim part of its recent decline, leaving the risk complex vulnerable while prompting another test of the 1.0890 region by EUR/USD on Tuesday.
EUR/USD advanced further and approached 1.0900. The Greenback lost further ground amidst mixed yields. An ECB rate cut in June appears almost fully priced in. The US Dollar managed to trim part of its recent decline, leaving the risk complex vulnerable while prompting another test of the 1.0890 region by EUR/USD on Tuesday.
Expectations for inflation over the next 12 months dropped to 2.9%, reaching their lowest level since September 2021. However, expectations for inflation three years out fell to 2.4%, still above the bank's 2% target. Looking ahead, the relatively subdued economic fundamentals in the Eurozone, coupled with the resilience of the US economy, support the ongoing narrative of Fed-ECB policy divergence and point towards a stronger Dollar in the long run.
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