Inflation in the U.S. and BoJ Weigh on the Dollar

The U.S. Dollar index (DXY) experienced a slight decline of 0.1% to 103.95 points this week, prompting the EURUSD to retreat by 0.3% to 1.08700. The market is bracing for the release of U.S. inflation data on April 10.

Last week, the EURUSD flirted with the possibility of dipping below 1.07000 but found support around 1.07250 before rallying to 1.08760 ahead of the Nonfarm Payrolls data release. Now, if the pair manages to surpass 1.08700, it could potentially continue its ascent towards 1.10000. However, it's likely to hover around 1.08600 before the release of March inflation data in the U.S. Analysts anticipate the consumer price index (CPI) to rise to 3.4% YoY compared to 3.2% YoY in February, with monthly inflation and core CPI data expected to decrease by 0.1% in March.

The recent resilience of the Dollar, despite robust U.S. labor market data, is notable. Nonfarm Payrolls significantly exceeded expectations for March, reaching 303,000, with unemployment dropping to 3.8% and average hourly earnings accelerating to 0.3% MoM. Despite these strong figures, the Dollar only saw a slight uptick before surrendering its gains by the end of the week. This dynamic occurred despite rising U.S. 10-year Treasuries yields, reaching 4.46%, and decreasing odds of interest rate cuts by the Federal Reserve (Fed) in June, which now stand at 46%, according to the CME FedWatch Tool.

Investor believe that BoJ may intervene when the USDJPY would rise above 153.0. The pair is very close to this barrier. In case of interventions, the Dollar will continue to weaken. This may result in the EURUSD to go up above 1.10000. The release of inflation data this Wednesday will serve as a key event driving market sentiment, alongside the FOMC Minutes and the meeting of the European Central Bank. However, the inflation release is expected to provide a fundamental basis for market movements.