EUR/USD Plummets as Hot US PPI Dashes Hopes for Big Fed Rate Cut

The EUR/USD pair tumbled 0.57% to 1.1638 on Thursday, driven by a surprisingly robust US inflation report that crushed expectations for a substantial Federal Reserve (Fed) rate cut in September. The sharp decline followed stronger-than-expected US Producer Price Index (PPI) data, which reignited inflationary concerns and bolstered the US Dollar.

The US Bureau of Labor Statistics reported that both headline and core PPI surged in July, largely due to the pass-through effects of elevated US tariffs. Adding to the dollar’s strength, labor market data from the Department of Labor showed a decline in unemployment benefit claims compared to the prior reading, signaling continued resilience in the US job market. As a result, market participants scaled back bets on a 50-basis-point Fed rate cut at the September 16-17 meeting, with some now pricing in the possibility that the Fed may keep rates unchanged.

In the Eurozone, economic data painted a mixed picture. Gross Domestic Product (GDP) figures met expectations, but June’s Industrial Production slumped, weighed down by weakness in Germany and declining consumer goods output. Despite these challenges, analysts see potential for EUR/USD to recover, as the Fed is still expected to cut rates in September, while the European Central Bank (ECB) is likely to hold rates steady. A narrowing interest rate differential between the US and the Eurozone could provide a tailwind for the euro in the near term.

Looking ahead, Friday’s economic calendar in the European Union will be quiet. In contrast, the US docket will feature key releases, including Retail Sales, Industrial Production, and the University of Michigan Consumer Sentiment Index, which could further shape market expectations for Fed policy and influence the EUR/USD trajectory.