EUR/USD gives up little intraday gains on expected decline in US inflation.

EUR/USD gives up some of its intraday gains as the US Dollar rebounds.
An expected decline in the US CPI report for July reinforced a recovery in the US Dollar.
The Euro gains on expectations that the ECB will cut interest rates more gradually.

EUR/USD falls slightly from a fresh seven-month high of 1.1035 but remains positive in Wednesday’s New York session after the release of the United States (US) Consumer Price Index (CPI) report for July. The major currency pair faces mild pressure as the US Dollar (USD) rebounds after the CPI report showed that price pressures remained in line with market expectations. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, recovers its intraday losses and rises to near 102.65 from a fresh weekly low of 102.37.

The US CPI repot showed that monthly headline and core inflation, which strips of volatile food and energy items, rose by 0.2%, as expected. Annual headline CPI rose at a slower pace of 2.9% from the estimates and June’s reading of 3%. In the same period, the core CPI decelerated to 3.2%, as expected, from the former reading of 3.3%.

On the interest rate guidance, Atlanta Federal Reserve (Fed) Bank President Raphael Bostic said on Tuesday that recent has increased its confidence that inflation will return to 2% but he wants a little more evidence to endorse interest rate cuts. It seems that an expected decline in the US inflation data would boost the confidence of policymakers that inflation is on track to return to the desired rate of 2%.

Soft inflation reading would also boost speculation that the Federal Reserve (Fed) will start reducing interest rates in September aggressively. Currently, the CME FedWatch tool shows that traders price in a 48.5% chance for a 50 basis point (bp) rate reduction in September.

Earlier, the US Dollar was on the backfoot due to a softer-than-expected US Producer Price Index (PPI) report for July. Headline and core PPI, softened on a monthly as well as annual basis. This suggests that producers are losing pricing power due to deteriorating demand conditions.

Daily digest market movers: EUR/USD remains broadly firm on Euro’s strength

EUR/USD clings to gains above 1.1000 in Wednesday’s New York session. The major currency pair is upbeat due to the outperformance of the Euro (EUR) against its major peers. The Euro performs strongly on expectations that the European Central Bank (ECB) will cut its key borrowing rates further, although in a gradual manner.
The ECB started its policy-easing cycle in June after officials gained confidence that price pressures will return to bank’s target of 2% in 2025. However, policymakers continued to refrain from committing a pre-defined interest-rate cut approach as they worry that an aggressive expansionary monetary policy stance could re-accelerate inflation again.
A Reuters poll carried out between August 8-13 showed that over 80% of respondents expect the ECB to cut interest rates two more times this year, one in September and the other in December.
On the economic front, the Eurostat has released revised estimates of flash Q2 Gross Domestic Product (GDP). The report showed that the Eurozone economy expanded by 0.3%, in line with flash figures and the growth rate recorded in the first quarter of this year.