EUR/USD tumbles to near 1.1100 as US Dollar recovers with US PCE inflation in focus

EUR/USD comes under pressure as the Euro weakens on firm ECB rate cuts prospects.
The Eurozone’s weak economic outlook supports ECB rate cut bets for September.
The US Dollar regains ground with US core PCE inflation data under the spotlight.

Sagar Dua FXStreet

EUR/USD slumps from fresh highs of 1.1200 in Wednesday’s New York session as the Euro (EUR) weakens. The Euro underperforms its major peers as investors seem confident that the European Central Bank (ECB) will cut interest rates again in September.

The ECB started reducing interest rates in June as policymakers appear confident that price pressures in the Eurozone will return to the bank’s target of 2% in 2025. However, it decided to leave its key borrowing rates unchanged in July as officials were worried that an aggressive policy easing process could revamp inflationary pressures again.

With evidence from Eurozone flash HCOB PMI for August and Q2 Negotiated Wage Rates that the overall economic outlook is uncertain and wage pressures are easing, the ECB is widely anticipated to reduce interest rates by 25 bps in September. Traders also see the ECB cutting borrowing rates again somewhere in the last quarter of this year.

For fresh cues on the interest rate cut path, investors await the flash Harmonized Index of Consumer Prices (HICP) data for August for Germany and the overall Eurozone, which will be published on Thursday and Friday, respectively. Economists expect that price pressures to have decelerated.

Euro PRICE Today

The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Japanese Yen.

	EUR	USD	GBP	JPY	CAD	AUD	NZD	CHF
EUR		-0.66%	-0.24%	-0.19%	-0.38%	-0.39%	-0.41%	-0.33%
USD	0.66%		0.42%	0.45%	0.25%	0.28%	-0.02%	0.31%
GBP	0.24%	-0.42%		0.02%	-0.18%	-0.14%	-0.14%	-0.12%
JPY	0.19%	-0.45%	-0.02%		-0.17%	-0.16%	-0.22%	-0.14%
CAD	0.38%	-0.25%	0.18%	0.17%		0.03%	0.00%	0.06%
AUD	0.39%	-0.28%	0.14%	0.16%	-0.03%		-0.03%	0.02%
NZD	0.41%	0.02%	0.14%	0.22%	-0.01%	0.03%		0.06%
CHF	0.33%	-0.31%	0.12%	0.14%	-0.06%	-0.02%	-0.06%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).

Daily digest market movers: EUR/USD slides sharply on firm ECB rate-cut bets

EUR/USD corrects to near 1.1100 in North American trading hours. The major currency pair drops as the US Dollar (USD) regains ground after posting a fresh year-to-date (YTD) low this week. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, edges higher to near 100.80 from fresh lows of 100.50.
A mild recovery in the US Dollar appears to be a short-lived pullback move for now, which could be capitalized as a selling opportunity by market participants. The near-term outlook for the Greenback is vulnerable on sheer optimism that the Federal Reserve (Fed) will start reducing interest rates in September.
While Fed rate cuts in September have been fully priced in by traders, bets remain split over whether the central bank will cut interest rates gradually by 25 basis points (bps) or deliver a larger one of 50 bps. According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data shows that the likelihood of a 50-bps interest rate reduction in September is 34.5%, while the rest favors a cut by 25 bps.
For fresh cues about the potential rate-cut size, investors await the United States (US) core Personal Consumption Expenditure Inflation (PCE) data for July, which will be published on Friday. The PCE Price Index report is expected to show that the annual core inflation rose by 2.7%, up from June’s reading of 2.6%, with monthly figures growing steadily by 0.2%. Signs of a further decline in the underlying inflation would prompt expectations for the Fed to adopt an aggressive policy-easing approach. On the contrary, sticky figures would dampen this jumbo rate-cut scenario.

Technical Analysis: EUR/USD sees support near 1.1100

EUR/USD declines to near 1.1100 after posting a fresh swing high at 1.1200. The broader outlook of the major currency pair remains firm as it holds the breakout of the Symmetrical Triangle chart pattern formed on the weekly time frame. The upward-sloping 20-week Exponential Moving Average (EMA) near 1.0900 supports more upside ahead.

The 14-period Relative Strength Index (RSI) oscillates in the bullish range of 60.00-80.00, suggesting a strong upside momentum. On the upside, the July 2023 high at 1.1275 and the January 2022 high of 1.1500 will be the next stops for the Euro bulls. The downside is expected to remain cushioned near the psychological support of 1.1000.

Economic Indicator

Core Harmonized Index of Consumer Prices (YoY)

The Core Harmonized Index of Consumer Prices (HICP) measures changes in the prices of a representative basket of goods and services in the European Monetary Union. The HICP, – released by Eurostat on a monthly basis, is harmonized because the same methodology is used across all member states and their contribution is weighted. The YoY reading compares prices in the reference month to a year earlier. Core HICP excludes volatile components like food, energy, alcohol, and tobacco. The Core HICP is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish.

GBP/USD resumes the downtrend, revisits 1.3230

GBP/USD remains under pressure below 1.3250 on Tuesday, giving back part of the previous day's advance. Meanwhile, Cable’s weakness follows a generalised rebound in the Greenback, particularly triggered by the sharp rally in USD/JPY.

EUR/USD stays offered, flirts with 1.1400

EUR/USD remains under selling pressure on Tuesday, trading around 1.1400 as a firmer US Dollar weighs on the pair. Softer-than-expected German inflation data for June adds to the Euro's headwinds, putting the pair on track to snap a three-day winning streak.

Gold advances modestly above $4,000

Following multi-month lows near $3,950, Gold now manages to regain some composure and reclaim the area beyond the key $4,000 yardstick per troy ounce on Wednesday. Still, any meaningful recovery appears limited as a broadly firmer US Dollar and rising US Treasury yields weigh on the yellow metal.

Ripple defends critical support, Stellar extends recovery

Ripple (XRP) trades around the key $1.00 psychological level, consolidating as the token awaits its next directional catalyst. Stellar (XLM) extends its recovery above $0.178 after posting modest gains at the start of this week.

Why a hawkish Bank of Japan could trigger the next Bitcoin sell-off

The Japanese Yen hits a 40-year low of 162.00 against the US Dollar, raising concerns about intervention or additional rate hikes by the Bank of Japan. BoJ may sell US Treasuries to buy back Yen, potentially pushing US bond yields higher and making Bitcoin less attractive to investors.

Kevin Warsh isn't expected to say much in Sintra: That's exactly why markets will listen

Financial markets could find an important catalyst in the enchanting, fairytale-like landscape of Sintra this week. The ECB Forum will, as it does every year, gather the crème de la crème of central banks. The new boss at the Fed, who has clearly said that the Fed should stop explaining everything, will need to talk – and traders should listen.