EUR/USD SLUMPS AS US DOLLAR EXTENDS RECOVERY AFTER FED RATE-CUT BETS FADE

EUR/USD dips to near 1.0830 as investors turn cautious ahead of Eurozone/US inflation data.

ECB Knot advised the use of a gradual rate-cut approach due to dynamic components such as inflation, demand, and wage growth.

The US Dollar bounces back as investors expect the Fed to start reducing interest rates in the last quarter of the year.

EUR/USD falls to 1.0830 in Wednesday’s European session after failing to recapture a two-month high near 1.0900 on Tuesday. The major currency pair retraces as the market sentiment turns cautious ahead of the release of the Eurozone preliminary Consumer Price Index (CPI) data for May and the United States (US) core Personal Consumption Expenditure Price Index (PCE) data for April, which will be published on Friday.

The Eurozone CPI and US core PCE inflation data will significantly influence market speculation for interest rate cuts by the European Central Bank (ECB) and the US Federal Reserve (Fed). 

The Fed’s preferred inflation measure is estimated to have grown steadily on a monthly and annual basis at 0.3% and 2.8%, respectively.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, extends recovery to 104.80. The sharp recovery in the US Dollar is prompted by dismal market sentiment. Investors turn risk-averse after traders pare Fed rate cut bets for the September meeting as officials have been guiding to keep interest rates at their current levels until they see significant progress in the disinflation process. Currently, investors expect the Fed to start reducing interest rates from the last quarter of the year.