EURUSD continues below 1.1050 as investors get cautious ahead of the August US inflation report and the ECB policy decision.
EURUSD trades carefully as the Euro (EUR) shows a lackluster performance on Tuesday, with investors focusing on the European Central Bank’s interest rate policy announcement on Thursday.
The ECB likely to lower its benchmark borrowing rates by 25 basis points (bps).
ECB largely expected to lower interest rates by 25 basis points (bps) on Thursday. The ECB will decrease interest rates for the second time during its current policy-easing cycle. which the bank began in June but held borrowing rates steady in July.
Though investors appear to be convince that the ECB will resume its policy-easing process. Market players will mostly look to the monetary policy statement and ECB President Christine Lagarde’s press conference for indications on anticipated policy action for the rest of the year.
Lagarde is likely to provide dovish interest rate guidance as the annual Harmonized Index of Consumer Prices (HICP) of Germany, the Eurozone’s largest economy, reverted to the bank’s aim of 2% in August. Furthermore, German economic growth is susceptible due to a weak demand environment. The combination of falling inflation and worsening economic conditions lays the path for an expansionary monetary policy.
Currently, financial market participants anticipate that the ECB would reduce interest rates once again in the fourth quarter of this year.
Daily Market movers: EURUSD trades cautiously as ECB appears ready to lower interest rates this week.
In Tuesday’s European session, the EURUSD struggled to recover from its weekly low of 1.1030. The major currency pair is under pressure as investors prepare for the release of the August Consumer Price Index (CPI) data in the United States (US) on Wednesday.
Investors will be closely watching the US consumer inflation statistics because it is only a week before the Federal Reserve’s (Fed) monetary policy meeting. The inflation figures will provide new information about whether the Fed will begin its policy-easing process gradually or forcefully. The use of inflation statistics to get additional insight into the amount of the Fed interest rate cut expanded dramatically. As the August US Nonfarm Payrolls (NFP) data fail to provide a convincing argument for the Fed expected interest rate drop size.
US inflation statistics will affect market speculation about the Fed’s anticipated interest rate cut magnitude.
Previously, market players were concerned that the Fed would choose for a substantial interest rate decrease in September due to a sharp slowdown in US employment creation, as suggested by the July NFP report, which raised fears of the economy entering a recession. However, Friday’s NFP news indicated that the labor market is not as dismal as it appeared last month.
Economists predict the annual headline CPI to have increased at a lesser rate of 2.6%, the lowest since March. 2021, compared to 2.9% in July. Core inflation, which includes volatile food and energy prices, estimated to have gradually increase by 3.2%. Both monthly headline and core inflation are expected to climb by 0.2%.
Later this week, investors will focus on the US Producer Price Index (PPI) data for August, which will be release on Thursday.
