Market Analysis

The EUR/USD pair is trading defensively around 1.0935 in the early European session on Friday. The stronger-than-anticipated US inflation data released on Thursday has bolstered the US Dollar, limiting any upward movement for the pair.

The elevated US Consumer Price Index (CPI), combined with a robust September jobs report, suggests that any potential rate cuts from the US Federal Reserve (Fed) will likely be gradual. Following the CPI announcement, the CME FedWatch Tool indicated that investors have increased the likelihood of a 25 basis point (bps) rate cut in November to 83.3%.

Traders will look for additional guidance from the US Producer Price Index (PPI) for September, along with the preliminary Michigan Consumer Sentiment Index for October, scheduled for release on Friday. The headline PPI is projected to show a 1.6% year-on-year increase for September, while the core PPI is expected to rise by 2.7% year-on-year during the same period. However, if the results are weaker than anticipated, this could negatively impact the US Dollar against the Euro.

On the other hand, European Central Bank (ECB) policymakers are advocating for a rate cut in response to the economic slowdown, which may create selling pressure on the Euro. The ECB is expected to implement two rate cuts this year, with a reduction of the deposit rate to 3.5% anticipated next week. More than 90% of economists surveyed by Reuters foresee a reduction next week, with a similar majority predicting another cut in December.

Later today, Germany's Harmonized Index of Consumer Prices (HICP) inflation data is set to be released, with expectations for it to remain steady at 1.8% year-on-year for September.

Paraphrasing text from "FX Street" all rights reserved by the original author.