On Thursday, the EUR/USD currency pair climbed above the 1.1050 mark, reflecting a positive market sentiment driven by recent US Producer Price Index (PPI) data. The figures bolstered expectations that the Federal Reserve will initiate a rate-cutting cycle, with the first reduction anticipated on September 16. As Eurozone data remains inconsequential for Friday, traders are likely to take a pause following the European Central Bank’s (ECB) decision to lower its main reference rate from 4.25% to 3.65% on Thursday. Investors will also await the University of Michigan’s Consumer Sentiment Index, which will provide final insights into US consumer confidence before the close of the trading week.
In August, US PPI increased by 0.2% month-over-month, with core PPI rising by 0.3%. Forecasts had anticipated a modest increase in headline PPI to 0.1% from a previous reading of 0.0%, and a core PPI uptick to 0.2% from July’s -0.2% contraction. Despite the short-term rise, annual PPI inflation data were more favorable to investors. Year-over-year headline PPI fell to 1.7% from a revised 2.1%, coming in below the projected 1.8%. Core annualized PPI also outperformed expectations, remaining steady at 2.4% versus the anticipated 2.5% increase.
Additionally, initial jobless claims in the US for the week ending September 6 rose slightly to 230,000, aligning with expectations, compared to the previous week’s revised 228,000.
With PPI inflation remaining moderate and jobless claims remaining stable, expectations for a Federal Reserve rate cut on September 18 are strong. The Fed is widely anticipated to announce a 25 basis point reduction, marking the beginning of a delayed rate-cutting cycle for 2024. The CME FedWatch Tool indicates an over 80% probability of a 25 basis point cut next week, while a smaller 20% of the market still speculates on a potential 50 basis point cut. Rate traders are also projecting a total of four rate reductions by the end of the year, with December’s target expected to range between 4.25% and 4.50%.
