Euro Surges as Fed Hike Expectations Plummet on Weak US Data

The Euro has surged against the US Dollar (USD) as fading expectations of a near-term Federal Reserve interest-rate hike have weighed on the Greenback. The EUR/USD pair is currently trading around 1.1580, its highest level since June 17. The US Dollar Index (DXY), which tracks the USD against six major currencies, has fallen to 99.50, down 0.47% on the day.

The weakness of the USD comes as a batch of disappointing US economic data has tempered expectations of an interest-rate hike. Retail Sales fell by 0.6% in July, missing forecasts for a 0.1% increase and reversing the previous month's 0.2% gain. Preliminary data from the University of Michigan showed that Consumer Sentiment Index dropped to 51.0 in August from 55.2, while the Consumer Expectations Index fell to 50.6 from 55.4.

The data follows recent reports on the Consumer Price Index (CPI) and Producer Price Index (PPI), which showed price pressures easing for a second consecutive month, suggesting that the inflationary impact of the recent energy shock is fading. Markets now see around a 70% chance that the Fed will keep interest rates unchanged in September, a sharp shift from earlier expectations of an increase.