Daily digest market movers: EUR/USD trades sideways ahead of key inflation data
- EUR/USD trades with caution as the US Dollar (USD) consolidates ahead of the US PCE inflation data for July. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades slightly below a fresh weekly high of 101.58.
- Investors await the US inflation data to get fresh cues about the likely monetary policy action by the Federal Reserve (Fed) in the September meeting. The PCE report is expected to show that year-over-year core inflation rose at a slightly faster pace of 2.7% from 2.6% in June, with monthly figures growing steadily by 0.2%.
- Currently, financial markets seem to be confident that the Fed will start reducing interest rates in September. However, traders remain split over the potential size by which the Fed will pivot to policy-normalization.
- According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data shows that the likelihood of a probability of 50-basis points (bps) interest rate reduction in September is 33%, while the rest are favoring a cut by 25 bps.
- The likelihood of a bigger rate cut has fallen slightly after the US Bureau of Economic Analysis (BEA) reported that the pace at which the economy grew in the second quarter was higher than previously estimated. The agency reported that the economy grew at a robust pace of 3% on an annualized basis, against the preliminary estimates of 2.8%.
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