Euro retreats below 1.1600, Dollar appreciates heading into the US CPI release
- EUR/USD extends losses below 1.1600 on track for a moderate weekly decline.
- Markets await US CPI data with bets of a Fed rate hike on the rise.
- Risk aversion and Fed tightening hopes have offset the positive impact of the ECB's hawkish hike.
The Euro (EUR) accelerates its reversal against the US Dollar (USD) on Friday, as the impulse from a hawkish hike by the European Central Bank (ECB) fades. The EUR/USD pair trades at weekly lows near 1.1590 at the time of writing, down from 1.1650 highs earlier in the week, as investors await the release of US Consumer Price Index (CPI) data to support growing hopes that the Federal Reserve (Fed) will hike interest rates next week.
Futures markets are pricing a 67% chance of a quarter-point rate hike after the September 15-16 Fed meeting, up from 50% in the previous week, according to data from the CME’s FedWatch Tool.
Investors ramped up bets on Fed monetary tightening on Thursday, after US Producer Price Index (PPI) figures showed that inflation at the factory gate accelerated to a 5.4% year-on-year (Y-o-Y) pace in August, from 4.8% in July. Likewise, the core PPI increased to a 4.6% Y-o-Y rate from 4.3% in the previous month.
US inflation data and Fed uncertainty keep Dollar traders on edge
The US CPI release, due later, is seen as the last piece of data to complete the Fed's monetary policy puzzle. Analysts at Commerzbank, however, observe that the market is "anticipating several interest rate rises totalling 80 basis points by the middle of next year,” which, in their opinion, might be a long shot, as policymakers may argue that “while the headline rate is rising due to higher energy prices, the core rate remains moderate (today’s forecast is 0.2% month-on-month),” which might give arguments to the dovish side of the board to keep rates on hold.
Commerzbank also states that “at present, no one can accurately gauge the new Fed Chair’s willingness to raise interest rates,” and that, therefore, "even if today’s figure sends a clear signal, this does not necessarily mean that the Fed (and thus the USD) will ultimately pick it up.”
In the Eurozone, the European Central Bank (ECB) met expectations on Thursday and raised its benchmark Rate on the Deposit Facility by 25 basis points to 2.5% for the second consecutive time. ECB President Christine Lagarde conveyed a hawkish message, affirming that inflation will remain above the bank's 2% target until "well into 2027," which leaves the door open for further monetary tightening.
Economic Indicator
Consumer Price Index (YoY)
Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.
Read more.Next release: Fri Sep 11, 2026 12:30
Frequency: Monthly
Consensus: 3.4%
Previous: 3.4%
Source: US Bureau of Labor Statistics
The US Federal Reserve (Fed) has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.
Economic Indicator
Consumer Price Index ex Food & Energy (YoY)
Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as the Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The CPI Ex Food & Energy excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures. Generally speaking, a high reading is bullish for the US Dollar (USD), while a low reading is seen as bearish.
Read more.Last release: Wed Aug 12, 2026 12:30
Frequency: Monthly
Actual: 2.5%
Consensus: 2.5%
Previous: 2.6%
Source: US Bureau of Labor Statistics
The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.
Author
Guillermo Alcala
FXStreet
Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.
