• EUR/USD rose to a fresh one-month high near 1.0850 amid weakness in the US Dollar ahead of the US inflation data for June.
• The US Dollar declines as Fed’s Powell took away fears of inflation remaining persistent.
• The Euro capitalizes on easing fears of a widening French financial crisis and diminishing ECB rate cut prospects.

EUR/USD posts a fresh one-month high at around  1.0850 in Thursday’s European session. The major currency pair strengthens as the US Dollar (USD) is facing selling pressure due to firm expectations that the Federal Reserve (Fed) will start reducing interest rates in September. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, edges lower to near 104.90.

Market speculation for Fed rate cuts in September increased as comments from Fed Chair Jerome Powell, in the semi-annual Congressional testimony, indicated that the central bank has made quite a bit of progress in inflation and that labor market strength appears to have eased. Powell refrained from announcing a victory on inflation and said rate cuts would be appropriate when policymakers gain confidence that inflation will return to the desired rate of 2%.

For meaningful guidance on the interest rate outlook, investors await the US Consumer Price Index (CPI) data for June, which will be published at 12:30 GMT. The CPI report is expected to show that the core inflation, which strips off volatile food and energy items, grew steadily by 0.2% and 3.4% on monthly and annual basis, respectively. Annual headline inflation is estimated to have decelerated to 3.1% from May’s reading of 3.3%, while the monthly figure is expected to have barely grown after remaining unchanged in May.

A scenario in which price pressures remain sticky or hotter-than-expected would force trades to pare bets of rate cuts in September. On the contrary, soft numbers will be favorable for lowering borrowing costs. A decline in the US inflation would also increase confidence that the disinflation process has resumed and high price pressures recorded in the first quarter were mere a short-term blip.