EUR/USD: Sticky US inflation makes a break higher harder – SocGen

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Are Fed rate cuts going to be pushed back even further? Economists at Société Générale do not expect the EUR/USD pair to break higher as sticky inflation could delay Fed easing even more.

Most measures of underlying US inflation suggest it is either stopped falling or has bounced

There are more ways of measuring inflation than there are of calculating the natural rate of interest, but most of the serious ones will suggest that the underlying momentum is now upwards rather than still falling.

With the US economy displaying remarkable resilience in recent months, inflation is indeed looking sticky. It will take a lot more than that to propel the Dollar significantly higher from these already elevated levels, but it does put something of a floor under it. In practical terms, that makes a break higher in EUR/USD harder unless or until we see some significantly stronger economic data in Europe. 

With the ECB and Fed on track to cut rates in June, EUR/USD is stuck, but the danger is that the Fed timing is pushed back, again.