Euro edges higher against US Dollar after soft US PPI data

The Euro gained slight momentum against the US Dollar on Thursday, following disappointing US Producer Price Index (PPI) data that did not provoke significant market movement. The Euro/US Dollar pair, EUR/USD, is currently trading around 1.1537, having climbed from a daily low of 1.1511, the lowest level in over a week. The US Bureau of Labor Statistics reported that the headline PPI remained flat in July, following a decline of 0.1% in June, while the annual rate decreased to 4.7% from 5.5%.

Core PPI rose by 0.2% month-over-month, down from 0.4%, with the annual rate easing to 4.2% from 4.7%. This follows Wednesday's generally in-line Consumer Price Index (CPI) data, which indicated a decline in headline and core inflation on an annual basis. The combined effect of the weaker-than-anticipated July Nonfarm Payrolls report and the new inflation figures has reduced the likelihood of a Federal Reserve (Fed) interest rate hike.

According to the CME FedWatch Tool, the probability of a September rate hike has dropped to 32%, from 55% the previous week. The reprieve from the US Dollar Index (DXY) has led it to fall below the 100 psychological mark after reaching a two-week high earlier in the day. US Treasury yields are declining across the curve, with the 2-year yield, particularly sensitive to Fed policy expectations, trading at 4.14%, its lowest level since July 17.

However, the lack of response from the Euro/US Dollar pair suggests traders are hesitant to take on substantial positions due to persistent inflation risks driven by elevated energy prices and the unresolved Strait of Hormuz situation. Cleveland Fed President Beth Hammack noted that while the latest inflation reports were "welcome news," she is not fully convinced of the ongoing progress.

She emphasized that the labor market remains stable, but supply shock-related inflation poses more persistent challenges. Hammack concluded that "we need to act now." Despite the lowered expectations for a September Fed rate hike, markets still anticipate the European Central Bank (ECB) raising rates next month. A Reuters poll from August 10 to 13 indicated that 57 out of 69 economists expect the ECB to increase its deposit rate by 25 basis points (bps) to 2.50% in September.

The EUR to major currencies table below shows the percentage change of the Euro (EUR) against listed major currencies today, highlighting its strongest performance against the New Zealand Dollar.