The EURUSD currency pair remains in a tight range above the round-level support of 1.0900 on Monday as it struggles for direction. Investors look for fresh cues at the start of a busy data week that will likely indicate how much the Federal Reserve will cut interest rates in September.
Anticipation Builds Around US Consumer Price Index
For fresh interest rate cues, investors mainly await the US Consumer Price Index (CPI) data for July to be published on Wednesday. Economists expect that monthly headline and core inflation, which strips off volatile food and energy prices, rose by 0.2%. Annual headline and core CPI are estimated to have decelerated by one-tenth to 2.9% and 3.2%, respectively.
Currently, the Fed is anticipated to start reducing its key borrowing rates in September as Fed policymakers seem to have become confident that price pressures are on track to return to the desired rate of 2%. Also, officials have acknowledged that downside risks have now emerged for the labor market.
According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data shows that traders see a 46.5% chance that interest rates will be reduced by 50 basis points (bps) in September, significantly down from the 85% recorded a week ago. The expectations for a big Fed rate-cut have waned as fears of potential US recession have eased.
Also, Fed officials have clarified that the size and timing of rate cuts will be driven by the economic data and not by the recent turmoil in equity markets.
Eurozone Economic Calendar Highlights
This week, the Eurozone economic calendar will report the revised estimates of flash Q2 GDP and preliminary Employment Change data, which will be published on Wednesday. According to expectations, the Eurozone economy expanded by 0.3% on quarter, in line with flash figures and the growth rate recorded in the first quarter of this year. Meanwhile, the Employment Change is expected to rise at a slower pace of 0.2% from the prior release of 0.3%.
Strong GDP and employment numbers are favorable for the Euro as they reduce the chances of further policy easing by the European Central Bank (ECB). The ECB has already pivoted to policy normalization and investors look for cues that could suggest how far the central bank will take its key borrowing rates down. Currently, financial markets expect that the ECB will cut interest rates twice more this year.
Last week, Finnish ECB policymaker Olli Rehn said, “rate cuts would help the eurozone economy recover, in particular the ‘fragile’ industrial growth and subdued investments,” according to a Reuters report.
EURUSD chart by TradingView
