EUR/USD drops below 1.0900 as investors await US inflation data

During the Asian session, the EUR/USD pair lost the support of the round-level mark of 1.0900, with investors becoming nervous ahead of the release of US inflation data. The US inflation report is expected to offer clear guidance on the Federal Reserve’s interest rates. As a result, the major currency pair has attracted significant offers.

Investors’ expectations for a hawkish Fed policy have led the US Dollar Index (DXY) to reach a day’s high of 102.21. According to the CME Fedwatch tool, 66% of bets are in favor of a 25 basis point (bp) rate hike from Fed chair Jerome Powell.

Investors will keep a close eye on Wednesday’s US inflation data. While headline inflation is predicted to decline further due to lower oil prices, the core Consumer Price Index (CPI), which excludes oil and food prices, is expected to rise due to higher labor cost index data. The tight labor market conditions in the US have forced firms to provide higher payouts to retain talent, resulting in higher disposable funds for households.

In the Eurozone, Retail Sales data will be closely monitored. Monthly Retail Sales (March) are expected to decline by 0.8% compared to February’s expansion of 0.3%, and annual Retail Sales are expected to decline further to 3.5% from the prior contraction of 2.3%. Although this may please the European Central Bank (ECB), it is insufficient to support a neutral stance for the upcoming monetary policy meeting.