Euro slumps as rate cuts fade

EUR/USD falls to 1.0830 in Wednesday’s New York session after failing to recapture a two-month high near 1.0900 on Tuesday. The near-term outlook of the major currency pair turns uncertain as investors shift focus to the release of the Eurozone preliminary Consumer Price Index (CPI) data for May and the United States (US) core Personal Consumption Expenditure Price Index (PCE) data for April, which will be published on Friday. 

The Eurozone CPI and US core PCE inflation data will significantly influence market speculation for interest rate cuts by the European Central Bank (ECB) and the US Federal Reserve (Fed).  

The Fed’s preferred inflation measure is estimated to have grown steadily on a monthly and annual basis at 0.3% and 2.8%, respectively. 

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, extends recovery to 104.80. The sharp recovery in the US Dollar is prompted by dismal market sentiment. Investors turn risk-averse after traders pare Fed rate cut bets for the September meeting as officials have been guiding to keep interest rates at their current levels until they see significant progress in the disinflation process. Currently, investors expect the Fed to start reducing interest rates from the last quarter of the year.