- EUR/USD remains silent as traders adopt caution ahead of the ECB interest rate decision.
- The European Central Bank is expected to maintain the Main Refinancing Operations Rate at 2.15% in September.
- The US Dollar could experience weakness as softer PPI boosts Fed easing prospects for September.
EUR/USD holds ground after two days of losses, trading around 1.1700 during the Asian hours on Thursday. The pair moves little as traders adopt caution ahead of the European Central Bank (ECB) interest rate decision due later in the day.
The ECB is widely expected to keep the Main Refinancing Operations Rate unchanged at 2.15% for the second consecutive meeting in September, as trade uncertainty persists and eurozone inflation remains on target for a third month.
The EUR/USD pair may regain its ground as the US Dollar (USD) could face challenges as traders fully price in a rate cut by the US Federal Reserve (Fed) in September, following softer-than-estimated US Producer Price Index (PPI) data.
Traders now turn to the August US Consumer Price Index (CPI), due later today, which could strengthen expectations for a larger 50-basis-point Fed rate cut next week. The headline CPI is forecasted to rise by 2.9% YoY in August, while the core CPI is projected to increase 3.1% YoY during the same period.
Markets are now fully pricing in a 25 basis points (bps) rate cut at the Fed’s September meeting, while the chance of a larger 50 bps reduction has also risen to nearly 12%, according to the CME FedWatch tool.
The US Bureau of Labor Statistics (BLS) reported on Wednesday that the US PPI inflation declined to 2.6% on a yearly basis in August from 3.3% in July. This figure came in below the market consensus of 3.3%. On a monthly basis, the PPI declined by 0.1% in August, compared to the 0.7% increase (revised from 0.9%) prior.
