EUR/USD Holds Firm above 1.0980, Markets Cautious Ahead of US PPI Data

During the early European session on Friday, the EUR/USD pair maintains its position above the 1.0980 level. Following a retreat from its weekly high of 1.1065 following US inflation data, the major pair has remained in positive territory for a third consecutive day. However, market participants are treading cautiously, opting to remain on the sidelines in anticipation of the US Producer Price Index (PPI) release later in the American session.

In its monthly Economic Bulletin issued on Thursday, the European Central Bank (ECB) underscored that inflation in the Eurozone is still projected to remain elevated for an extended period, while the prospects for economic growth and inflation continue to be uncertain. According to a Reuters poll, economists do not anticipate reaching the target inflation rate of 2.0% until at least 2025. Moreover, over 90% of surveyed economists expect no rate cuts before the second quarter of 2024.

Shifting focus to the US Dollar, recent data indicated that the US Consumer Price Index (CPI) rose to 3.2% year-on-year (YoY) from 3% in June. Although slightly below the market consensus of 3.3%, this increase in inflation influenced the Euro’s performance. Furthermore, the Core CPI, excluding volatile food and energy prices, declined from 4.8% to 4.7%. Additionally, US Initial Jobless Claims surpassed expectations, rising to 248,000 compared to the expected 230,000. As a result, the US Dollar reversed its trajectory, exerting downward pressure on the Euro on Thursday.

In addition, Mary C. Daly, President of the Federal Reserve Bank of San Francisco, stressed that it is premature to determine whether further rate hikes or an extended period of rate retention are necessary, as more information needs assessment. This cautious approach by the Fed hampers the EUR/USD pair’s potential for upward movement.

Looking ahead, attention is now directed at the eagerly anticipated US inflation data. The upcoming release of the US Producer Price Index (PPI) later in the day is projected to indicate a rise from 0.1% to 0.7% YoY. Furthermore, the University of Michigan (UoM) Consumer Confidence Survey is slated for release on Friday, with traders hoping the data will convince the Federal Reserve (Fed) that inflation is under control and further interest rate hikes are unnecessary. The outcome of these data releases will significantly influence the future trajectory of the EUR/USD pair.