EUR/USD maintains strength above 1.1000 as US Dollar extends downside ahead of US Inflation

• EUR/USD is sustaining comfortably above 1.1000 as the USD Index has continued its losing spell.
• The downside momentum in the USD Index indicates that investors are very much confident about only one more interest rate hike from the Fed.
• ECB Villeroy conveyed that inflation will continue to decline and will be back at 2% by 2025.

The EUR/USD pair has confidently shifted above the psychological resistance of 1.1000 in the Asian session. The major currency pair is in a bullish trajectory as the US Dollar Index (DXY) has extended its losses to 101.37 ahead of the United States Consumer Price Index (DXY).

S&P500 futures have added marginal gains after a bullish Tuesday, portraying significant strength in the risk appetite theme. Investors have shrugged off uncertainty associated with upcoming corporate earnings and inflation data.

The USD Index has continued its four-day losing spell. The downside momentum in the USD Index indicates that investors are very much confident about only one more interest rate hike announcement from the Federal Reserve (Fed) by year-end.

For more clarity, investors are awaiting inflation data. Analysts at ANZ expect both headline and core CPI inflation to rise by 0.3% MoM in June. Such an outcome would still be too hot for the Fed. Although goods price inflation should remain subdued and further reductions in rent-based inflation are likely to occur, the Fed needs to see more of a slowdown in core services ex-housing to be confident overall inflation is headed to 2% sustainably. For this to happen, labor market conditions need to soften further and with it wage growth.

On the Eurozone front, the final reading of German inflation shows that annual price pressures are at 6.8% and the European Central Bank (ECB) has no other option than to raise interest rates further. ECB President Christine Lagarde has already confirmed that more interest rate hikes are appropriate to tame stubborn inflation.

About inflation guidance, ECB Governing Council member Francois Villeroy de Galhau said on Tuesday that inflation will continue to decline and will be back at 2% by 2025.