Soft US retail sales and cooling inflation reduce Fed rate hike expectations, weighing on the USD and lifting the euro.
The EUR/USD pair climbed to a two-month high in Asian trading, nearing the 1.1600 level as the USD weakened. The move extends a three-day rally fueled by receding Federal Reserve rate hike bets after July’s US retail sales fell 0.6%, the steepest drop since May 2022.
Weaker consumer spending and moderating price pressures have eased pressure on the Fed to tighten further. The US 2/30-year yield curve steepened to 108bps, signaling investor concerns over the policy outlook and fiscal dynamics, which analysts say could push the DXY index toward the mid-98 range.
Meanwhile, the euro found support as markets priced in a final 25-basis-point ECB rate hike in September, contrasting with the Fed’s more cautious stance.