Euro trims losses against the US Dollar, but Fed rate-hike bets keep gains in check.

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The Euro (EUR) stages a rebound against the US Dollar (USD) on Tuesday as month-end repositioning weighs modestly on the Greenback, limiting support from upbeat US economic data. At the time of writing, EUR/USD trades around 1.1415 after hitting an intraday low of 1.1382.

EUR/USD recovers from an intraday low as month-end repositioning pressures the US Dollar.
Fed rate-hike bets and geopolitical uncertainty continue to underpin the Greenback.
ECB policymakers offer mixed signals on the need for another rate hike.

US JOLTS Job Openings rose to 7.594 million in May from April's revised 7.585 million, beating market expectations of 7.3 million.

Meanwhile, the Conference Board's Consumer Confidence Index rose to 91.2 in June from a downwardly revised 90.6 in May. The reading fell short of economists' expectations of 94.7, according to a Reuters poll.

The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, trades around 101.23 after hitting an intraday high of 101.43 and remains on track for a second consecutive monthly gain, leaving EUR/USD on course for a second straight monthly decline.

The Greenback remains supported by hawkish Federal Reserve (Fed) expectations and lingering uncertainty over the next round of US-Iran talks. While US and Iranian envoys have arrived in Doha, no direct talks between the two sides are scheduled.

Cleveland Fed President Beth Hammack said, "Inflation is still too high," adding that the Fed "may need to consider rate hikes" and that "core inflation has been elevated; it's not just an energy story."

Traders are currently pricing in a 67% probability of a September rate hike, according to the CME FedWatch Tool. Attention now turns to this week's labor market data, including the ADP Employment Change report and the Nonfarm Payrolls (NFP) report, for fresh clues on the Fed's policy outlook.

On the Euro side, expectations for another European Central Bank (ECB) rate hike have become less certain as easing Oil prices reduce inflation concerns.

Speaking on Tuesday, ECB policymaker Olli Rehn said, "I don't see major second-round effects materialising," and added, "It's important not to commit to a predetermined rate path." Meanwhile, ECB policymaker Pierre Wunsch said, "We're going to have some second-round effects," adding that "we might need another hike."

Inflation FAQs

What is inflation?

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

What is the impact of inflation on foreign exchange?

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

How does inflation influence the price of Gold?

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.