The EUR/USD pair surged to a 1-1/2-month high on Wednesday, driven by unexpected U.S. economic data that could prompt the Federal Reserve to adopt a more dovish stance. U.S. consumer prices in April increased less than anticipated, with the headline month-on-month CPI at +0.3%, below the +0.4% estimate. This eased concerns about inflation overheating. Additionally, April retail sales figures and downward revisions to March sales data indicated potential cooling in the U.S. economy. The New York Fed's May business conditions index further supported this view, posting -15.6 compared to the -10.0 estimate and April's -14.3. As a result, Treasury yields dropped sharply, and investors began to price in a higher likelihood of the Fed cutting rates before the U.S. election. The CME's FedWatch Tool showed a 30% probability of a July rate cut, up from 27% on Tuesday, and the probability for a September cut rose to nearly 70% from around 65%.

Federal Reserve Chair Jerome Powell's reiteration that a hike will not be the next move, combined with Wednesday's data, may push policymakers towards cutting rates sooner than expected. This potential shift could further erode the dollar's yield advantage over the euro, thereby supporting the EUR/USD rally towards the 1.1050/1.1100 range. The market's reaction underscores the sensitivity to economic data and the Fed's policy direction, highlighting the dynamic interplay between inflation, growth indicators, and monetary policy expectations. As the Fed's stance becomes more dovish, the euro could continue to strengthen against the dollar, extending its recent gains.