• EUR/USD finds support near 1.0710 but the outlook remains uncertain ahead of an eventful New York session.
• The US CPI and the Fed’s dot plot will provide cues about the time frame and number of rate cuts this year.
• ECB policymakers refrain from providing a specific interest-rate path.

EUR/USD edges higher to 1.0750 in Wednesday’s European session ahead of the United States (US) Consumer Price Index (CPI) data for May and the Federal Reserve’s (Fed) interest rate decision, which are scheduled for the American session. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, falls slightly to 105.20.

Investors will pay close attention to US inflation data and the Fed’s dot plot as it is widely expected that the central bank will leave interest rates unchanged in the range of 5.25%-5.50% for the seventh time in a row. The US inflation data will provide cues about when the Fed will start reducing interest rates. The Fed’s dot plot indicates where policymakers see the federal funds rate heading in the medium and long-term time frames.

Economists see US annual core inflation, which strips off volatile food and energy prices, decelerating to 3.5% from April’s reading of 3.6%. In the same period, headline inflation is expected to have grown steadily by 3.4%. Monthly headline CPI is estimated to have grown at a slower pace of 0.1% from 0.3% in April, with core inflation rising steadily by 0.3%.

Currently, financial markets are mixed about the Fed choosing the September meeting as the one in which the central bank will begin cutting interest rates. Traders pared Fed rate-cut bets for September after the US Nonfarm Payrolls (NFP) report for May indicated robust job demand and strong wage growth, which suggested a stubborn inflation outlook.

The new projections for the number of rate cuts are expected to show fewer rate cuts compared to the three predicted In March’s dot plot as officials lose confidence over progress in the disinflation process. Consumer Price Index (CPI) data for the January-March period turned out to be stronger than expected, highlighting the persistence of inflation. However, price pressures abated as expected in April but failed to bring conviction that the disinflation process has resumed.