EUR/USD Downturn Looms as Dollar Finds Support Ahead of Crucial US Inflation Data
The EUR/USD has been consolidating in a tight range, following a hawkish rate hike from the European Central Bank (ECB) that failed to deliver a breakout. With the US dollar finding renewed support in recent days, the risk to the near-term EUR/USD forecast is tilted to the downside.
The next test for the currency pair comes with today's Consumer Price Index (CPI) report from the United States. Markets expect headline inflation to rise 0.4% month on month in August, taking the annual rate to 3.4%, while core CPI is expected to ease slightly to 2.4%. A benign CPI report would give investors some relief, particularly in equities, but a meaningful upside surprise could have a larger market impact.
The Federal Reserve is in a difficult position, with Chair Kevin Warsh having set a relatively high bar for incoming data to overturn the current hawkish tone. However, Christopher Waller has suggested that continued improvement in inflation could remove the need for a September move. Much has changed since those comments, with oil prices surging in recent days.