EURUSD Above 1.09 on Softer US CPI but Still in Range on Higher PPI

Throughout June, market doubts about a second Fed rate decrease and concerns about European politics following the EU legislative elections put downward pressure on EUR/USD. However, this month, the market has a pessimistic view on the USD, which is pressuring the US dollar once more and supporting EUR/USD . Following Federal Reserve Chairman Jerome Powell’s speech before Congress on Tuesday and Wednesday, the EUR/USD was trading close to 1.0800. The Fed remained cautious even though inflation data showed improvement, disappointing market investors who were expecting a more dovish tone. However the soft CPI report on Thursday got the buyers going and the price closed just above 1.09 on Friday evening.

US CPI Data and Fed Rate Cut Speculation

On Thursday, the EUR/USD pair increased close to 1.0900 due to the US Consumer Price Index (CPI) report for June showing lower-than-anticipated data. This has fueled speculation that the Federal Reserve will begin lowering interest rates following its September meeting. According to the CME FedWatch tool, the likelihood that the Fed will cut rates in September has risen to 89% from 74.4% a week prior. US annual core inflation, excluding volatile food and energy prices, dropped to 3.3% from 3.4% in May, against the forecast of 3.1%.

Detailed US Inflation Data

Headline inflation increased at a reduced rate of 3% during the same period, compared to forecasts of 3.1% and the previous reading of 3.4%. The monthly headline CPI unexpectedly fell by 0.1% after staying flat, contrary to analyst expectations for a nominal increase of 0.1%. Core inflation rose by 0.1%, slower than estimates and the previous reading of 0.2%. This milder CPI inflation data, following a similar report in June, gives investors confidence that the disinflationary process in the United States has resumed and that the strong price pressures recorded in the first quarter were only a temporary blip.