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Dollar consolidates ahead of jobless claims, retail sales data

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The EURUSD currency pair consolidated around 1.0300 in Thursday’s North American session. The major currency cross trades sideways, following the US Dollar footprints, while the DXY Dollar Index wobbles around 109.15.

The DXY Index strives to recover Wednesday’s losses that were driven by mixed US Consumer Price Index (CPI) data for December.

The CPI report showed that price pressures were broadly mixed in the US. On a yearly basis, headline inflation accelerated expectedly, while the core reading rose at a slower-than-projected pace.

Signs of mixed inflationary pressures forced traders to reassess market expectations for the Federal Reserve’s monetary policy outlook.

According to the CME FedWatch tool, traders anticipate more than one interest rate cut this year, similar to what officials projected in December’s Summary of Economic Projections (SEP).

Before Wednesday’s inflation data, traders expected the Fed to cut interest rates only once this year.

However, Fed officials are still worried about the inflation outlook amid uncertainty over incoming policies under President-elect Donald Trump’s administration.

New York Fed Bank President John Williams said in a speech at the CBIA Economic Summit on Wednesday that the disinflation process is “in train”; however, the economic outlook remains highly uncertain, especially around “potential fiscal, trade, immigration, and regulatory policies.”

In Thursday’s session, investors await the US Initial jobless Claims data for the week ending January 10 and the US Retail Sales data for December.

The broader outlook for the Euro remains bearish as investors expect the European Central Bank to continue reducing interest rates gradually this year.

According to a January 10-15 period Reuters poll, all 77 economists see the ECB reducing the Deposit Facility rate by 25 basis points (bps) to 2.75% in the January meeting, and 60% of them are confident about three additional 25 bps interest rate cuts by the mid-year.

Meanwhile, ECB officials are also comfortable with expectations that the Deposit Rate will slide to 2% by mid-summer. ECB policymaker and Governor of the Bank of France François Villeroy de Galhau said, “It makes sense for interest rates to reach 2% by the summer,” as we have practically won the “battle against inflation.”

Villeroy added that bringing down borrowing costs will bolster the “financing of the economy” and a “drop in the household savings rate.”

The outlook of the Eurozone economy remains vulnerable as market participants worry that higher import tariffs by the US under Trump’s administration will weigh on the export sector significantly.

EURUSD chart by TradingView

(Source: OANDA)