The EUR/USD pair has regained some ground, trading around 1.1080 during the early Asian session on Friday, breaking a two-day losing streak. However, gains may be limited as traders await key economic reports, including the Eurozone’s July Harmonized Index of Consumer Prices (HICP) and the US July Personal Consumption Expenditure (PCE) Price Index.
The US Department of Commerce reported on Thursday that the Gross Domestic Product (GDP) growth rate for the second quarter (Q2) increased at an annualized rate of 3.0%, surpassing both forecasts and the initial estimate of 2.8%. This robust growth figure suggests that the US might avoid a recession and dampens expectations for a larger 50 basis-point (bp) rate cut by the Federal Reserve (Fed) in September, providing support for the US Dollar (USD). Financial markets now foresee a 66% chance of a 25 basis point rate cut in September, with the probability of a deeper cut falling to 34%, down from 36.5% before the GDP data release, according to the CME FedWatch Tool.
In Europe, the Consumer Price Index (CPI) data from Germany and Spain indicated further cooling of inflation in August. This has fueled speculation about a potential interest rate cut by the European Central Bank (ECB), putting pressure on the Euro (EUR). ING’s global head of macroeconomics, Carsten Brzeski, described the data as “great news for the ECB” and noted that the slowing economy and decreasing inflation create a “perfect macro backdrop” for lower rates. However, Brzeski cautioned that service sector inflation remains a concern.
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