EUR/USD plummeted at the start of April as bets the Federal Reserve (Fed) would cut interest rates in June quickly melted away amidst stickier-than-expected inflation and robust macroeconomic data.
On Tuesday, Federal Reserve Chairman Jerome Powell said high interest rates would likely be around for longer than previously expected given the little progress being made on inflation in recent months.
The Fed’s Beige Book, a comprehensive economic survey, on Tuesday repeated the view that little progress had been made on inflation but added that growth and employment were a little stronger than expected.
Everything points to the Fed maintaining interest rates at their relatively high (upper limit of 5.5% for the Fed Funds Rate) levels for a while until the behemoth of inflation is finally slain.
Indeed, The CME FedWatch tool, a market gauge of the probability of Fed rate cuts, is showing only a 16% probability of a cut in June (from over 70% only a few weeks ago) whilst the odds of a cut by September are now around 70%.
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