EUR/USD Slips as Hot US Inflation Data Boosts Fed Hike Expectations

The EUR/USD currency pair declined on Friday after the release of hotter-than-expected US Consumer Price Index (CPI) data, which boosted expectations of a Federal Reserve interest rate hike next week to nearly certain.

The hot CPI reading saw headline inflation rise 0.4% in August, matching forecasts, while core inflation rose 0.3%, its largest increase since April. Annual readings of 3.4% and 2.4% remain above the Fed's target of 2%. As a result, markets now anticipate a near 90% chance of a Fed rate hike next week, up from about 70% on Thursday.

The US dollar index (DXY) edged higher as Fed tightening expectations increased, while EUR/USD failed to break out of its September range near 1.16 due to waning bearish momentum.