The EUR/USD pair extended its weekly decline, falling to 1.1001 on Wednesday before showing a modest rebound towards the close. As the market heads into the Asian session, the pair is trading around 1.1020, maintaining an overall bearish outlook.
The release of the US Consumer Price Index (CPI) data sparked a risk-averse sentiment in the financial markets, dampening expectations for a 50 basis point interest rate cut by the Federal Reserve (Fed) in its upcoming meeting. According to the US Bureau of Labor Statistics, the CPI increased by 2.5% year-over-year in August, down from 2.9% in July. The core CPI remained steady at 3.2% year-over-year, while the core monthly index rose by 0.3%, surpassing the expected 0.2% increase.
The data undermined hopes for more aggressive easing from the Fed, leading to sharp declines in stock markets, with Wall Street initially posting significant losses. However, the three major US indexes managed to recover and reduce much of their early losses by the close. Despite this, the US Dollar retained a substantial portion of its gains across major currency pairs.
Looking ahead, investors are now turning their attention to the European Central Bank (ECB), which is set to announce its monetary policy decision early Thursday. The ECB is widely expected to implement a 25 basis point cut across its three main interest rates. This anticipated move is driven by easing inflationary pressures and growing concerns about a potential recession in the Eurozone. Although ECB officials are likely to emphasize their vigilance and data-dependence rather than directly addressing recession fears, market participants will be closely watching for any hints about future policy directions.
