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The EUR/USD currency pair slipped by 0.26%, settling at 1.1615 after reaching a daily high of 1.1675. The decline was driven by increased demand for the US dollar as traders positioned themselves ahead of the US Consumer Price Index (CPI) data release scheduled for Tuesday. This upcoming inflation report is critical, as a higher-than-expected figure could reduce expectations for a Federal Reserve rate cut in September, further strengthening the dollar. Meanwhile, Italy’s inflation held steady at 1.7% year-on-year in July, aligning with the European Central Bank’s (ECB) target and reinforcing the case for maintaining current interest rates.
The Euro faced headwinds despite optimism surrounding potential geopolitical developments. Discussions between US President Donald Trump and Russian President Vladimir Putin are reportedly progressing toward a possible ceasefire in Ukraine. Such an outcome could bolster the Euro, as many European Union countries, being net energy importers, would benefit from lower energy prices resulting from de-escalation. A resolution could ease economic pressures across the Eurozone, potentially supporting the shared currency in the longer term.
Looking ahead, traders are closely monitoring key economic indicators. In the US, July’s CPI is projected to show headline inflation rising to 2.8% year-on-year, up from June’s 2.7%, with core CPI expected to reach 3%, a level not seen since February. A hotter-than-expected report could dampen hopes for a 25-basis-point rate cut by the Federal Reserve, with current market odds at 85% for such a move, according to recent data. Other US releases, including producer prices, jobless claims, retail sales, industrial production, and consumer sentiment, will also shape market sentiment. In the Eurozone, the economic calendar is lighter but includes significant releases like the EU and Germany ZEW Surveys for August, French inflation, and Eurozone employment and growth figures.
On the monetary policy front, the ECB appears likely to pause its easing cycle in September, with a 91% probability of unchanged rates and only a 9% chance of a 25-basis-point cut. The US Dollar Index (DXY), which measures the dollar against a basket of major currencies, rose 0.26% to 98.52, reflecting the greenback’s strength. As investors await critical data and geopolitical updates, the EUR/USD pair remains under pressure, with potential for further downside if US inflation surprises to the upside.
