Euro Rises on Cooling US Inflation, Fed Rate Hike Bets Slashed

The Euro has made gains against the US Dollar as inflation in the United States cooled in July. The Consumer Price Index (CPI) rose 3.4% year-over-year, down from 3.5% previously, and core CPI, which excludes volatile food and energy costs, increased 2.5% year-over-year compared to 2.6% in June.

This moderation in inflation has reduced expectations for an aggressive Federal Reserve rate hike in September. According to the CME FedWatch tool, interest-rate swaps are now pricing in roughly a 40.1% chance of a rate hike in September, down from 75% the previous day.

The stronger Eurozone economy continues to support the European Central Bank's (ECB) hawkish stance. Market-based inflation expectations for the Euro Area over the next year sit around 2.4%, remaining above the ECB's official 2% target, while actual Eurozone inflation edged up to 2.9% in July.