Although market participants are still pessimistic about the outlook for the US dollar this year, the majority prefer to wait and see ahead of the release of US inflation data tomorrow.

The EUR/USD rally stalled in the 1.0750s range in the New York session on Wednesday (11/January). Although market participants are still pessimistic about the outlook for the US dollar this year, the majority prefer to wait and see ahead of the release of US inflation data tomorrow before determining their next move.

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The US dollar index (DXY) continues to hover at 103.30, where it has been slumping since the start of the week. The reason investors and traders believe the Federal Reserve will not raise interest rates to more than 5 percent this year. Many indicated that the Fed would start cutting interest rates before the end of the year.

In his speech at a discussion panel in Stockholm, Sweden, Fed Chair Jerome Powell did not provide any new policy clues yesterday. Several other Fed officials again emphasized that the next policy change will depend on data. Therefore, all eyes are on tomorrow's scheduled release of US inflation data.

The weakening of the US dollar has opened up opportunities for rival currencies, especially since the normalization of China's economic activity continues to improve global market sentiment. However, this week's main focus is releasing US inflation data.

"China's data hasn't provided any fresh insight into the recovery, but the speed at which authorities reopened the economy, and their willingness to tolerate high COVID-19 infection rates, surprised many and influenced (market) sentiment," noted Kit Juckes, head of FX strategy at Societe. Generally, "The US CPI data on Jan. 12 will attract the most attention, with markets anticipating the headline and core inflation data to fall, and possibly (the headline inflation data) to fall the most due to falling energy prices. (In addition) French Manufacturing Output data may be the focus of key Eurozone data."

The euro enjoys dual support from improved global growth prospects and falling gas prices. European gas prices have fallen to record lows in the last year and a half while the cold weather has eased and gas supplies are still abundant. Nevertheless, the prospects for gas prices and growth in this region are still being threatened by the Russia-Ukraine war.