The EUR/USD pair fell after the release of mixed US inflation data, erasing gains made earlier in the day due to US Dollar weakness following the Trump-Harris televised debate. The US Consumer Price Index (CPI) rose by 2.5% annually in August, below expectations and July’s figures. The core CPI, which excludes food and energy, remained unchanged annually at 3.2% in August.
The US Dollar strengthened after the CPI release, prompting EUR/USD to decline by about a quarter of a percentage point. The broad-based weakening of the USD earlier in the day was due to the perception that Vice President Kamala Harris outperformed former President Donald Trump in the debate. Trump’s policies, such as protecting the USD as the world’s reserve currency, led to the weakening of the Dollar.
Investors are debating the possibility of a jumbo rate cut by the US Federal Reserve at its upcoming meeting. While a 25 bps cut is expected, the chances of a 50 bps cut currently stand at around 30%. A larger rate cut would reduce USD inflows and be bullish for EUR/USD. The release of US CPI data for August is expected to influence Fed rate-cut expectations, although opinions differ on the extent of its impact.
The European Central Bank (ECB) is expected to announce a 25 bps cut to its deposit facility rate to stimulate growth in the Eurozone. The bank may also reduce its main refinancing operations rate, potentially weakening the Euro. Despite telegraphing these changes to the market, there is a risk of Euro weakening after the ECB meeting, especially if the bank cuts its growth forecasts. Technical analysis indicates a downtrend in EUR/USD, with potential support levels at 1.1000 and 1.0941.
Overall, the mixed US inflation data, speculation over a jumbo Fed rate cut, and concerns over Eurozone growth are influencing the movement of the EUR/USD pair. The market is closely watching the ECB meeting for potential rate cuts and economic projections. Traders should monitor key support levels and technical indicators to gauge the future direction of EUR/USD. The content is informative and presents a comprehensive overview of the factors affecting the currency pair’s performance.
