Euro builds on gains towards four-week highs as Eurozone inflation figures run hot

• Having rebounded from lows around 1.1100, EUR/USD pushes towards its four-week high of 1.1280.
• October consumer inflation in the Eurozone reached a three-year high, preliminary figures showed.
• A decisive Democratic victory in the US midterm elections continues to weigh on the USD.

Strong Eurozone inflation figures, alongside a decisive Democratic victory in the US midterm elections, are helping the Euro (EUR) gather pace in its recovery against the US Dollar (USD) on Wednesday. With a gain of more than 0.6% on the day, EUR/USD reached session highs just a few pips short of the upper end of its four-week trading range, in the 1.1260-1.1280 area.

At 4% year on year in October, the preliminary Harmonised Index of Consumer Prices (HICP) showed Eurozone inflation at its highest in three years, according to data published earlier on Wednesday. High energy prices drove the acceleration from September’s 3.8%.

By increasing pressure on the European Central Bank (ECB) to tighten monetary policy further in the coming months, the inflation figures have outweighed investor disappointment over the downward revision to October’s HCOB Services Purchasing Managers’ Index (PMI), published earlier in the day.

US Dollar comes under pressure after Trump’s midterm defeat

Meanwhile, reports of a decisive Democratic victory in Tuesday’s US midterm elections are leaving the US Dollar struggling. Both chambers have come under Democratic control, with the party also winning over historically Republican strongholds, including Kansas and Texas.

Technology shares have faced additional pressure as investors worry that the Democrats will introduce regulation of the AI sector and curb data centre construction plans. Those concerns have also lifted demand for safe-haven government bonds.

Offering another interpretation, analysts at Rabobank note that markets have taken Democratic control of Congress to mean “fewer fiscal giveaways and therefore less inflation,” a combination that “suggests lower yields on Treasuries, which have negative implications for the USD.”