The euro (EUR) posted modest gains against the US dollar (USD) on Wednesday as the US dollar comes under minor pressure following the release of US inflation data. At the time of writing, EUR/USD is trading around 1.15548, up 0.15% on the day.

The main consumer price index (CPI) fell to 0.5% m/m in May from 0.6% in April. Core CPI fell to 0.2% from 0.4%, below market expectations of 0.3%.

However, on an annual basis, CPI accelerated to 4.2% from 3.8%, the highest level since April 2023, and core inflation rose to 2.9% from 2.8%. Both readings were in line with market expectations.

The data suggests that core inflation remained relatively stable, while the escalate in overall inflation was largely driven by higher energy prices.

The US Dollar Index (DXY), which tracks the dollar against a basket of six major currencies, is trading around 99.85, consolidating tiny losses as the data did little to change the Federal Reserve’s (Fed) recent hawkish repricing of interest rate expectations.

Meanwhile, stable U.S. economic growth and a stabilizing labor market support the view that the Fed can keep interest rates unchanged for an extended period of time, with investors increasingly pricing in a rate hike by the end of the year.

At the same time, ongoing tensions in the Middle East continue to underpin demand for the safe-haven US dollar. US President Donald Trump warned in a Truth Social post that Iran had taken too long to “negotiate a deal that would be great for it” and that Tehran would now “have to pay the price.”

Attention now turns to the European Central Bank’s (ECB) monetary policy decision on Thursday. Markets have fully priced in a 25 basis point (bp) escalate in interest rates.

Traders will be closely watching ECB President Christine Lagarde’s post-meeting news conference for clues on whether further interest rate increases may occur and how policymakers plan to offset rising inflation with slowing economic growth due to higher energy costs.