- The euro climbed over 30 pips to around 1.1630, ending its two-day winning streak after mixed US inflation figures.
- US headline inflation increased by 0.2% in July, with the annual rate easing to 2.7%.
- Core consumer prices are expected to rise by 0.3% month-over-month and 3.1% year-over-year, exceeding forecasts.
On Tuesday, the euro gained some ground against the US dollar, breaking its two-day losing streak as US inflation data showed mild discrepancies. The leading indicators were slightly under the projected values for the annual assessment.
Despite the stronger core inflation reading, many traders are still anticipating that the Federal Reserve will lower interest rates in September. A mix of price pressures and a cooling labor market seems to provide some leeway for policymakers to consider easing borrowing costs.
As of now, the EUR/USD pair is hovering around 1.1630, making up for previous declines, likely influenced by deteriorating economic sentiment in the eurozone. In contrast, the US Dollar Index (DXY), which measures the dollar’s strength against a basket of six major currencies, is just above two-week lows at approximately 98.30.
According to data from the U.S. Bureau of Labor Statistics, the headline consumer price index (CPI) rose by 0.2% in July, matching expectations after a 0.3% increase in June. The annual consumer price change has been stable at 2.7%, although this is slightly lower than the 2.8% anticipated. In comparison, the core CPI, which omits volatile food and energy prices, increased by 0.3%, surpassing the expected 0.2%. The year-over-year core figure rose from 3.0% to 3.1%, which was above market expectations.
The interplay between lower headline inflation and stronger core readings presents a complicated scenario for the Fed. On one hand, the overall price trend appears stable; yet even with the anticipation of rate cuts in September, ongoing underlying pressures may prompt cautious moves from policymakers.
On the European front, sentiment is shaky after a steep drop in Germany’s Zew Economic Sentiment Index, which fell to 34.7 in August, missing the forecast of 40.0 and down from 52.7 in July. The eurozone’s readings also dropped from 36.1 to 25.1, with Germany’s current condition indicators showing a sharp decline, reflecting persistent growth challenges in the region’s largest economy.
Weaker survey data supports the notion that the European Central Bank (ECB) is likely to remain in wait-and-see mode, especially since eurozone inflation remains close to the 2% target.
In support of the euro, ECB council member Joachim Nagel noted that interest rates in the eurozone are at “very good levels,” suggesting that central banks might respond flexibly as needed. He mentioned that inflation “is no longer a major challenge,” although uncertainties from recent tariff developments have not been entirely resolved.
