EUR/USD Surges on Fading Fed Hike Bets and Soft US Inflation Data

The EUR/USD pair is trading near 1.1580 during the early Asian session on Wednesday, with the US Dollar (USD) softening against the Euro (EUR). The decline in US inflation data has reduced expectations of tighter Federal Reserve policy, leading to a strengthening of the Euro.

Most economists polled by Reuters expect the Fed to keep its key interest rate unchanged in September and through year-end. Market pricing for a September quarter-point hike has flipped towards a 65% odds of a Fed hold after the release of unexpected job losses in July, softer consumer price inflation, and weaker Retail Sales.

However, the ongoing US-Iran conflict may boost safe-haven currency demand and act as a headwind for the major pair. The European Central Bank (ECB) is also expected to continue its hiking cycle, with an 90% to 94% chance of a 25 basis points hike to 2.50% at the next policy meeting scheduled for September 9.

ECB chief economist Philip Lane said that Eurozone inflation at 3% remains too high despite appearing modest compared to previous levels. The Euro is holding firm, supported by improving survey data out of Germany and a resilient tone from traders.