EUR/USD DROPS TO NEAR 1.0870 AHEAD OF US INFLATION AND ECB BANK LENDING SURVEY

• EUR/USD has tumbled below 1.0900 amid uncertainty over the release of the US CPI.
• Higher US inflation may force the Fed to paddle interest rates quickly.
• The ECB will announce its monetary policy later this week.

The EUR/USD pair is scaling lower sharply after sliding below 1.0900 on Monday. The shared currency has been the worst performer these days amid the ongoing Ukraine crisis after Russia’s invasion of Ukraine. The military activity in the eastern part of Ukraine has triggered the fears of stagflation in the Eurozone. The asset is likely to remain uncertain as investors are waiting for the release of the US Consumer Price Index (CPI) and European Central Bank (ECB)’s Bank Lending Survey on Tuesday.

The US CPI has created havoc in the FX domain. The preliminary estimate of yearly US CPI at 8.5% is going to feature a jumbo interest rate hike by the Federal Reserve (Fed).

Although the Fed has already announced seven interest rate hikes this year, the higher US inflation print will force the Fed for tightening the policy to a great extent in the monetary policies, which will come first. The agenda of the Fed to return to the neutral rates may get strengthened and will demand a 50 basis point (bps) interest rate decision for more than one once this year.

On the Euro front, the ECB will report the Bank Lending Survey which will provide a glimpse of financing conditions in the Euro area. Adding to that, investors will also focus on Germany’s Harmonized Index of Consumer Prices (HICP), which is expected to land at 7.6% on Tuesday.

Although these economic data hold significant importance on the asset, the real show stopper will be the monetary policy announcement by the ECB on Wednesday. The ECB is expected to keep the interest rate decision unchanged at 0%.