EUR/USD advances towards 1.1200 ahead of EU unemployment rate

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  • EUR/USD is marching towards 1.1200 on rising bets on an interest rate hike by the ECB.
  • A higher preliminary inflation figure in Germany argues for a rate hike as soon as possible.
  • Apart from fuel and food, the ECB’s Lagarde sees no other factors compelling a hawkish stance.

EUR/USD added gains on Thursday after breaking above Tuesday’s high at 1.1171. The common currency has remained a decent performer in recent trading sessions amid growing bets on an interest rate hike for the first time since the Covid-19 pandemic.

Soaring inflation in the Eurozone is forcing policymakers at the European Central Bank (ECB) to raise interest rates. A preliminary estimate of the German consumer price index (CPI) shows that German annual inflation could climb to 7.3%, the highest figure in more than four decades. This calls for an interest rate hike by the ECB as soon as possible.

Russia’s invasion of Ukraine boosted oil and gasoline prices in Europe due to its greater dependence on oil and energy from Moscow. ECB President Christine Lagarde spoke about the outlook for inflation at an event hosted by the Bank of Cyprus on Wednesday, citing that apart from fuel and food, no other catalysts indicate the ‘inflation. However, food and energy prices should be barricaded now.

Meanwhile, the US Dollar Index (DXY) began to react to economic indicators after optimism over the Russian-Ukrainian peace talks faded. The DXY slipped below 98.00 on weak annualized Gross Domestic Product (GDP) numbers (Q4) and the change in Automatic Data Processing (ADP) employment.

Looking ahead, investors will focus on unemployment data from the European Union (EU), which is expected to land at 6.7% from the previous figure of 6.8% on Thursday. While the US filing will offer Nonfarm Payrolls (NFP), which claims a preliminary estimate of 480,000 against the previous figure of 678,000, which is due Friday.

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