The EUR/USD pair is trading defensively around 1.0935 during the early European session on Friday, as stronger-than-expected US inflation data from Thursday supports the US dollar and limits upward movement for the pair.
The recent rise in the US Consumer Price Index (CPI), combined with a robust September jobs report, has heightened expectations that any future rate cuts from the Federal Reserve will be gradual. Following the CPI release, the CME FedWatch Tool indicates an 83.3% probability that the Fed will reduce its policy rate by 25 basis points in November.
Market participants are now awaiting further signals from the US Producer Price Index (PPI) for September and the preliminary Michigan Consumer Sentiment Index for October, both scheduled for release today. The headline PPI is anticipated to show a 1.6% year-over-year increase, while the core PPI is expected to rise by 2.7% year-over-year. A weaker-than-expected outcome could undermine the US dollar against the euro.
On the European side, the European Central Bank (ECB) is leaning towards rate cuts amid an economic slowdown, which may exert downward pressure on the euro. The ECB is expected to implement two rate cuts this year, with a reduction in the deposit rate to 3.5% anticipated next week. More than 90% of economists surveyed by Reuters predict a cut in the upcoming meeting, with a similar majority expecting another reduction in December.
Additionally, Germany’s Harmonized Index of Consumer Prices (HICP) data is set to be released later today, with expectations that it will remain steady at 1.8% year-over-year for September.
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