Euro Forex Market Back to Parity as Dollar Gains

• USD Index Pushes Higher
• Euro Falls With US Retail Sales in Focus
• Stocks Recover Slightly

The forex market along with the rest of the economy is still in recovery mode following the surprise inflation report from earlier in the week that shocked to the upside. On the back of that, the Dollar has regained any previous strength while the US Dollar Index has also moved higher. The Euro has fallen victim on the other side of the trade as focus switches to US retail sales data. On Wall Street, the futures market is slowing slight gains as stocks continue to recover following the early week sell-off.

Dollar Index Back on Front Foot

The US Dollar Index, the measure which tracks the USD strength against a number of other major currencies, has moved higher following the release of CPI data on Tuesday. As with most other market segments, the release threw those forex trading into a tailspin. Previously, the Dollar had been softening as a more positive mood continued to return to the market. This mood quickly flipped when the results showed an inflation increase instead of the dip that had been forecast. 

This pushed the Dollar Index higher to a position where it is now back over 110.00. Among the many factors influencing the move higher are the fears of further and higher than expected rate hikes from the Fed. Where previously, 50-75 basis points had been expected, analysts are now left wondering if the increase could be even more than this.

Euro Back to Parity Again

Forex brokers will have noted an uptick in Euro trade early in the week as a drop in the key inflation reading was anticipated. The common currency moved as high as 1.03 against the Dollar with an expectation of further gains despite the ongoing supply issues and geopolitical issues plaguing the EU. 

This failed to materialize, and the Euro fell back quite dramatically as the expected data was reversed to show another inflation increase. The currency is now back to around parity with the US Dollar and with not too much in the near-term data to suggest it will break back higher. The next key driver for this market will be US retail sales data to come.

Stock Futures Cautiously Positive

Perhaps the biggest loser of the week on the hotter-than-expected inflation reading was the stock market. The indices on Wall Street tumbled as traders just like analysts were taken completely by surprise. Turmoil ensued on the street and Tuesday marked the worst day for market performance since the middle of 2020. In a market already struggling to recover, inflation continues to weigh on any form of positivity.

The futures market heading into the end of the week though shows a glimmer of hope. Markets have calmed across the board and all there major US indices have managed to edge out some advances ahead of more key data to come.