Soft US inflation data weakens USD, supporting EUR ahead of potential ECB rate hike in September.
The EUR/USD pair climbed during Friday’s Asian session, recovering from a near one-week low near 1.1500. The move follows weaker-than-expected US Producer Price Index (PPI) and Consumer Price Index (CPI) data, signaling slowing inflation and reducing Fed rate hike expectations. The USD remains below a two-week low, bolstering the euro.
Markets now price in a higher likelihood of the European Central Bank (ECB) delivering a final 25-basis-point rate hike in September, as inflation persists above the 2% target. However, geopolitical tensions, including NATO drone interceptions and Russia’s reported downing of 15 drones near Finland and Estonia, cap the pair’s upside by supporting the safe-haven USD.
EUR/USD trades below 1.1550, remaining within a two-week range amid mixed cues. The Fed’s potential pause and ECB’s hawkish stance provide support, but escalating regional conflicts limit aggressive bets.