US Dollar Weakens Against Euro as US Inflation Cools

The US Dollar weakened against the Euro as inflation data for July showed a cooling trend in the US. According to the Bureau of Labor Statistics, headline CPI increased 3.4% year-over-year, down from 3.5% previously, while core CPI rose 2.5% year-over-year compared to 2.6% in June.

TD Securities noted that the modest increase in inflation was partly explained by retreating energy prices and slowing food inflation. As a result, market expectations for future Fed policy shifts have adjusted, with interest-rate swaps pricing in a roughly 40.1% chance of a rate hike in September.

However, the EUR/USD pair's upside momentum may remain constrained by escalating geopolitical tensions between the US and Iran.

The Eurozone's macroeconomic picture continues to support the European Central Bank's hawkish stance, with market-based inflation expectations for the Euro Area remaining above the ECB's official 2% target. Analysts expect the ECB to deliver another 25-basis-point rate hike in September, given the region's resilient economic outlook and rising inflation.