Forex Market: EUR/USD declines a third day as US consumer prices rise more than expected

The euro declined for a third day against the US dollar, after a report by the US Bureau of Labor Statistics revealed consumer inflation in the US rose at a higher-than-expected pace last month, adding to signs for a healthy economic recovery and growth.

EUR/USD hit a session low at 1.3791 at 09:00 GMT, after which the pair consolidated at 1.3804, losing 0.12% for the day. Support was likely to be received at April 9th low, 1.3780, while resistance was to be met at April 14th high, 1.3863.

The report by the US Bureau of Labor Statistics put annual CPI growth for the month of March at the comforting 1.5%, beating experts’ forecast of 1.4%, while the monthly CPI growth was at a 0.2% rate, also outperforming the 0.1% forecast. Core CPI reached 1.7% growth on an annual basis and 0.2% on a monthly basis.

Rising shelter costs accounted for almost two-thirds of the Core CPI growth. Elsewhere, while food prices were brought up 0.4% by a drought in the West, a 1.7% fall in gasoline prices, alongside a decrease of 0.1% in energy costs limited inflation growth.

“The overall picture is that inflation has stopped falling and is on a gradual uptrend,” said Thomas Costerg, an economist at Standard Chartered Plc in New York, cited by Bloomberg. “To some extent, today’s numbers relieve fears about the U.S. slipping into deflation.”

Meanwhile, demand for the 18-nation common currency continued to be pressured after ECB President Mario Draghi commented on Saturday that further appreciation of the currency will result in looser monetary policy. Draghi reiterated his recent comments that the exchange rate is not part of the political prerogatives of the ECB, but he is watching it “with attention”.

“I’ve always said that the exchange rate is not a policy target, but it’s important for price stability and growth,” Draghi said in Washington on April 12, cited by Bloomberg. “And now, what has happened over the last few months, it’s become more and more important for price stability.”

Both, French Prime Minister Manuel Valls and his Spanish colleague, Mariano Rahoy criticized the ECB last week for not taking action against the strong exchange rate of the euro, which according to them stumbles the economic recovery in the euro zone.