Hey guys, as you see I am writing on 15/06/2018 right after the ECB’s decision to leave interest rates unchanged and before the announcement of Eurozone’s CPI. The decision of ECB to leave interest rates unchanged resulted in a sudden fall in EUR/USD.
I know that higher inflation of the base currency usually leads to the rise of the pair, in this case EUR/USD, assuming that we are in a healthy economy and higher inflation is an indicator of a potential increase of interest rates by the relevant bank.
*However, I must say that since recently I thought that high inflation should potentially lead to the devaluation of a pair, by the law of supply and demand (if the supply of money in the economy increases, in this case EUR, then the value of EUR falls). So I would appreciate if someone explains what I am missing here as well *
Anyway, in this case the order is reversed. The interest rate decision has first come out, and the inflation is being announced tomorrow. I was wondering how I should think about this problem in this case. How could each scenario of CPI announcement tomorrow influence EUR/USD?