Euro bounce pauses ahead of U.S. inflation

The single currency jumped 2.7% last week after a hawkish shift in tone from the European Central Bank. Reuters reported that it maintained gains but was unable to overcome resistance around $1.1483 even as European bond yields rose and last bought $1.1441.

Stunningly strong US employment data last week focused on inflation – expected at a four-decade high of 7.3% – in the run-up to the Fed’s March meeting.

Futures markets are pricing in about a 1 in 3 chance of a 50 basis point rate hike, and the potential for sharp hikes supports the dollar.

“The sudden defeat from the non-farm payroll numbers (which we have warned by Fed officials and the White House will be very weak due to Omicron) leaves the Fed in unexpected territory,” said NatWest Markets interest rate analyst Jan Nefrozi.

“The CPI is going to be critical on how the narrative evolves into March,” he said, though he added that, barring a major surprise, March will likely bring in only 25 basis points.

The dollar rose 0.1% against the yen in early Asian trade to 115.22 and the US dollar index is hovering at 95.425.

Overnight, bitcoin and the Australian dollar posted gains as stock markets rebounded cautiously in Europe. The Australian dollar rose about 0.7% and was last seen at $0.7130, just shy of the resistance around the 50-day moving average at $0.7163.

Bitcoin breached its 50-day average to hit $44,000 for the first time in nearly a month on Monday, and is up more than 17% in four sessions.

The New Zealand dollar made slight gains overnight at $0.6642. The British pound settled at $1.3538.

A quiet data calendar awaits on Tuesday, with a survey of small businesses in the US due later in the day. US inflation data is due on Thursday.

MI