The Euro (EUR) found support against the US Dollar (USD) on Wednesday after the latest US Producer Price Index (PPI) data came in softer than expected, weighing on the Greenback. EUR/USD recovered its intraday losses and was trading around 1.1430 at the time of writing, after hitting a low of 1.1406 earlier in the session [1].
US PPI fell 0.3% month-on-month in June, following a 0.6% increase in May and missing the forecast of 0%. On an annual basis, producer inflation slowed to 5.5% from 6.0%, below the expected 6.2%. Core PPI, which excludes food and energy, rose 0.2% month-on-month, underperforming the anticipated 0.4% increase but slightly above May’s 0.1% gain. The annual core rate edged up to 4.7% from 4.6%, still below the 5.2% forecast [1].
These figures followed softer US Consumer Price Index (CPI) data released the previous day, leading to reduced expectations for an immediate Federal Reserve (Fed) interest rate hike. The US Dollar Index (DXY) fell below 101, giving up earlier gains. According to the CME FedWatch Tool, markets now see an 88% chance that the Fed will leave rates unchanged at its July meeting, with the probability of a September hike dropping to around 52% [1].
Despite the recent inflation slowdown, risks remain due to potential energy-driven price increases following renewed fighting between the US and Iran, which has disrupted oil supplies through the Strait of Hormuz and lifted oil prices. New York Fed President John Williams stated that inflation remains too high and must return to the Fed’s target on a sustained basis, projecting inflation to ease to around 3.25% by year-end, approach 2% in 2027, and reach the target in 2028 [1].
On the European side, European Central Bank (ECB) officials maintain a cautious stance after raising the Deposit Facility Rate by 25 basis points to 2.25% in June. Bundesbank President Joachim Nagel commented that rates are currently at an appropriate level but emphasized that policymakers should act decisively if necessary [1].
In daily performance, the Euro was the strongest against the Canadian Dollar, gaining 0.09%, and rose 0.08% against the US Dollar [1].
CONCLUSION
Softer-than-expected US PPI and CPI data have reduced market expectations for imminent Fed rate hikes, pressuring the US Dollar and supporting the Euro. However, ongoing energy risks and cautious central bank commentary suggest that inflation and rate policy remain in focus for both the Fed and ECB.