Soft US inflation figures push traders to delay Fed rate hike expectations to September, lifting the euro against the dollar.
The EUR/USD pair extended gains after US inflation data came in softer than expected, weakening the dollar across major currencies. Markets now see a July Fed rate hike as unlikely, with the first increase priced for September and a full hike expected in December. The shift follows a dovish repricing of interest rate expectations, though geopolitical tensions, including the US-Iran crisis, cap dollar downside risks.
Prior to the data, traders had priced in a higher probability of a July hike, but the latest figures reduced urgency for further tightening. The ECB, meanwhile, saw June inflation ease, aligning with policymaker signals of a pause in July. Markets now anticipate 43 bps of ECB tightening by year-end, with the next hike likely in September. Energy price declines have further eased inflation concerns in the eurozone.
Technical analysis shows EUR/USD testing a major downward trendline, with sellers expected to defend resistance near current levels. A break above could target 1.16, while failure may push the pair toward 1.10.