EUR/USD holds in bullish territory awaiting US CPI and the Fed

• EUR/USD holds in a bullish territory as markets await key US  data and the Fed. 
• The Fed is expected to deliver a 50 bp rate hike but will be scrutinised for clues. 

EUR/USD is trading near 1.0535, mostly consolidated while traders get braced for interest rate decisions from a slew of central banks this week. The European Central Bank is expected to deliver a dialled-down 50 bps rate hike on Thursday, while the Federal Reserve, an arguably more key event, is expected to deliver a hawkish 50 bps hike also.

US CPI eyed

First up, the United States Consumer Price Index will be a key data event on Tuesday, which could cement the sentiment of either a more hawkish or dovish Federal Reserve for the months ahead, ceiling the fate of the US Dollar.

''Core prices likely maintained a firm pace in November, rising 0.3% MoM for a second consecutive month. Shelter inflation likely remained the key wildcard, though we look for goods deflation to act again as an offset. Importantly, gas prices are expected to provide relief to the CPI, as they fell in Nov. All told, our m/m forecasts imply 7.3%/6.1% YoY for total/core prices,'' analysts at TD Securities said.

Meanwhile, the money markets are currently pricing an almost 75% chance that the US central bank will hike rates by 50 basis points after delivering four successive 75 basis point rate increases. However, some analysts anticipate a hawkish outcome from the event. 

''We expect a more hawkish tone than what he delivered to the Brookings Institution last month,'' analysts at Brown Brothers Harriman said awaiting the interest rate decision and who argued that ''the Fed narrative remains too dovish.''

'With both Average Hourly Earnings (AHE) and core Personal Consumption Expenditures (PCE) flat-lining near 5% for most of this year, we don’t think this expected tightening path will get inflation back to target, not when the labour market remains so firm and consumption is holding up,'' the analysts explained. ''Furthermore, the swaps market continues to price in an easing cycle in H2 2023. This seems highly unlikely and so the mispricing continues,'' the analysts argued.