EUR/USD drops on faster US annual PPI growth.

EUR/USD faces pressure near 1.0950 as the US PPI came in hotter-than-expected.
The Fed is expected to cut interest rates by 25 bps in November.
The Euro holds strength despite firm ECB dovish bets amid a faster-than-expected decline in Eurozone inflationary pressures.

EUR/USD falls back to near the key support of 1.0930 in Friday’s New York session. The major currency drops as the US Dollar (USD) rises after the release of the United States (US) Producer Price Index (PPI) data, which showed that producer inflation accelerated at a faster-than-expected pace in September on year-on-year. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, strives to climb above 103.00.

The report showed that the annual headline PPI inflation decelerated at a slower-than-expected pace to 1.8% from 1.9% in August, upwardly revised from 1.7%. Economists expected the headline producer inflation to have grown by 1.6%. In the same period, the core PPI – which strips off volatile food and energy prices – rose by 2.8%, faster than estimates of 2.7% and the former release of 2.6%, upwardly revised from 2.4%. The monthly headline PPI remained flat, while the core figure grew expectedly by 0.2%.

Hotter-than-expected US producer inflation after stubborn inflation data has renewed risks of inflation remaining persistent. However, it is unlikely to weigh on market expectations for the Federal Reserve (Fed) to cut interest rates in November by 25 basis points (bps), according to the CME FedWatch tool.

On the contrary, Atlanta Federal Reserve (Fed) Bank President Raphael Bostic has brought the option of leaving interest rates unchanged at 4.75%-5.00% in November on the table.

The comments from Bostic in an interview with the Wall Street Journal on Thursday indicated that he is comfortable with skipping the interest rate cut next month. Bostic said, “This choppiness to me is along the lines of maybe we should take a pause in November and I’m definitely open to that.” His comments came after the release of the US Consumer Price Index (CPI) report, which showed that inflationary pressures rose at a faster-than-expected pace in September.

Daily digest market movers: EUR/USD falls while Euro outperforms against other peers

EUR/USD slips to near1.0930 in North American trading hours. Market participants have underpinned the US Dollar against the Euro (EUR). However, the Euro performs strongly against other major peers despite market participants expect the European Central Bank (ECB) to cut interest rates further in both monetary policy meetings remaining this year.
The ECB has already reduced its Deposit Facility Rate by 50 basis points (bps) to 3.5% this year. The central bank is expected to cut them further by 50 bps again in the remaining year. Traders have priced in two rate cuts of 25 bps, one of which will come next week and the second in December.
ECB dovish bets have been accelerated by a faster-than-expected decline in Eurozone inflationary pressures and growing risks to economic growth. This week, ECB policymaker and Governor of the Greek Central Bank Yannis Stournaras said that price pressures are declining faster than the ECB forecasted in September. Stournaras also backed two more rate cuts in each of the remaining meetings this year, emphasizing the need to reduce them further in 2025.
Meanwhile, revised estimates for the German Harmonized Index of Consumer Prices (HICP) for September have shown that price pressures remained below the bank’s target of 2% at 1.8%, as shown in flash estimates.
On the economic front, the growth prospects of the Eurozone are vulnerable as its largest nation, Germany is forecasted to close the year with a decline in output by 0.2%, the German economic ministry said.