The EUR/USD currency pair reversed its three-day losing streak, trading around 1.1050 during Wednesday’s Asian session. This rebound is attributed to a weakened US Dollar (USD) ahead of the upcoming US Consumer Price Index (CPI) data, which is expected to provide new insights into the Federal Reserve’s (Fed) potential interest rate cut in September.
The USD is under pressure as US Treasury yields continue to decline. The US Dollar Index (DXY), which measures the USD against a basket of six major currencies, ended its three-day winning streak and is trading around 101.40. At the time of writing, the yields on 2-year and 10-year US Treasury bonds are at 3.57% and 3.62%, respectively.
Recent US labor market data has cast doubt on the possibility of a more aggressive rate cut by the Federal Reserve. According to the CME FedWatch Tool, the market is anticipating at least a 25 basis point (bps) rate cut at the Fed’s September meeting, though the probability of a 50 bps cut has decreased slightly to 31.0%, down from 38.0% a week ago.
The Euro faced some downward pressure from recent German inflation data. The Harmonized Index of Consumer Prices (HICP) for August showed a 2.0% year-on-year increase, in line with expectations, and a 0.2% decline on a monthly basis, also as forecasted. Similarly, the Consumer Price Index (CPI) remained stable at 1.9% year-on-year in August, meeting market expectations.
Looking ahead, traders are anticipating that the European Central Bank (ECB) will lower interest rates to 4.0% by implementing a 25 basis point cut at its upcoming policy meeting on Thursday.
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