EURUSD trades sideways below 1.1100 as investors anticipate crucial inflation data from both the Eurozone and the United States.

In Friday’s European session, EURUSD traded in a very tight range below 1.1100. With investors focusing on the Eurozone’s flash Harmonized Index of Consumer Prices (HICP) for August and the United States’ Personal Consumption Expenditure Price Index (PCE) for July. Which will be published at 09:00 GMT and 12:30 GMT, respectively.

Soft German inflation raised expectations for another ECB interest rate decrease in September.

The Eurozone HICP report is likely to reveal that headline inflation has slowed substantially. Lower energy prices have reduced the rate to 2.2% from 2.6% in July. During the same time period, the core HICP, which excludes volatile components such as food, energy. Alcohol, and tobacco, expected to expand by 2.8%, slower than the previous release of 2.9%.
The preliminary inflation data is expected to influence market speculation. On the European Central Bank’s (ECB) September interest rate decreases and, more broadly. The policy easing path for the rest of the year.
Financial market players appear to be convinced that the ECB will drop key borrowing rates again in September. The ECB shifted to policy normalization in June, but interest rates remained steady in August. Market predictions for ECB September rate cuts grew dramatically after data released on Thursday revealed that pricing Pressures in Germany, the Eurozone’s largest economy, have returned to 2% for the first time in more than three years. Furthermore, the economy is prone to a technical recession, since it contracted by 0.1% in the second quarter of this year, and its economic forecast is uncertain. Other Eurozone economies, such as France and Spain, experienced strong inflation declines in August.
“Fading inflationary pressure combined with fading growth momentum offers an almost perfect macro backdrop for another rate cut,” wrote Carsten Brzeski, global head of macro at ING, in a note issued on Thursday.
The European Central Bank is also likely to slash interest rates again in the fourth quarter of this year.

Daily digest market movers: EURUSD trades sideways before key Inflation Data.

EURUSD trades cautiously as the US Dollar (USD) consolidates ahead of July’s PCE inflation report. The US Dollar Index (DXY), which analyzes the US dollar’s value against six major currencies, is trading just below a new weekly high of 101.58.
Investors are waiting for US inflation data to gain a better sense of the Federal Reserve’s (Fed) expected monetary policy stance at its September meeting. The PCE data is projected to reveal that year-over-year core inflation increased at a slightly quicker rate of 2.7%, up from 2.6% in June, with monthly readings rising consistently by 0.2%.

Fed will choose for a larger rate reduction upwardly revised US Q2 GDP lessens the likelihood.

Currently, financial markets appear to be optimistic that the Fed will begin lowering interest rates in September. However, traders remain divided on the possible size by which the Fed will turn toward policy normalization.
According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data shows that 33% of traders expect a 50-basis point (bps) interest rate cut in September, while the remainder prefer a 25-bps cut.
The possibility of a larger rate cut has decreased marginally after the US Bureau of Economic Analysis (BEA) revealed that the pace of economic growth in the second quarter was faster than previously expected. The government said that the economy expanded at a solid 3% annualized rate, compared to preliminary projections of 2.8%.