- EUR/USD falls as US Core CPI rises 0.3% MoM, supporting expectations for a 25 bps Fed rate cut.
- The ECB is anticipated to lower rates by 25 bps this week, in response to slowing EU economic data and Germany’s inflation drop to 1.9% YoY.
- The ECB’s post-September monetary policy decisions may face added complexity due to persistent inflation components.
The Euro is poised to finish Wednesday’s session with slight losses against the US Dollar, declining 0.04% after the latest US inflation report revealed that the core Consumer Price Index (CPI) remained unchanged in August. The EUR/USD pair is trading at 1.1014, having reached a daily high of 1.1055.
EUR/USD Slips as Traders Await ECB Rate Decision
Wall Street closed on a positive note, while the US Dollar gained strength after the Core Consumer Price Index (CPI) for August rose 0.3% MoM, surpassing the previous month’s 0.2% and market expectations. The other inflation metrics, including headline and annual figures, aligned with forecasts.
The decline in the EUR/USD was constrained as the European Central Bank (ECB) monetary policy decision approached. The pair hit a daily low of 1.1001 but quickly rebounded to the 1.1010-1.1020 range.
This movement was also influenced by changes in market expectations regarding the Federal Reserve's upcoming rate decisions. Money market futures traders reduced their expectations for a 50 basis point rate cut next week from approximately 40% to 15%, while the probability of a 25 basis point cut increased from 66% to 85%.
The upcoming ECB decision is highly anticipated. The ECB is expected to lower rates by 25 basis points, given Germany's inflation rate of 1.9% YoY and PMI readings indicating an economic slowdown. However, some ECB hawks might oppose this move due to persistently high inflation components.
Looking ahead, Reuters sources suggest that ECB monetary policy decisions after September will be increasingly complex.
In the US, the economic focus will be on the latest Initial Jobless Claims report for the week ending September 7 and the Producer Price Index (PPI) release.
EUR/USD Technical Outlook
The EUR/USD is currently neutrally biased but remains above the 1.1000 level ahead of the ECB’s decision. The momentum is slightly bearish, as indicated by the Relative Strength Index (RSI), although its slope is upward.
A breakout above the September 11 peak at 1.1054 could propel the pair towards the 1.1100 level. Conversely, a drop below 1.1000 would see initial support at the 50-day moving average (DMA) at 1.0967, followed by the July 17 swing high turned support at 1.0948.
