EUR/USD Climbs Toward 1.1685 as Softer US CPI Reinforces Fed Rate Cut Bets

EUR/USD Gains as US Dollar Softens on Fed Rate Cut Expectations

EUR/USD rises on Fed policy outlook
The EUR/USD pair is gaining traction during Wednesday's Asian session, trading close to 1.1685 and breaking decisively above the 1.1650 resistance level. The move is fueled by increased confidence in a potential Federal Reserve rate cut next month following softer-than-expected US inflation figures.

CPI data backs dovish stance
According to the U.S. Bureau of Labor Statistics (BLS), the Consumer Price Index (CPI) remained flat at 2.7% year-over-year in July, slightly below the consensus estimate of 2.8%. Core CPI, which strips out food and energy prices, rose 3.1%, up from June’s 2.9% and slightly above forecasts. This data, while indicating sticky core inflation, is not seen as restrictive enough to prevent the Fed from easing policy amid labor market concerns.

As a result, the CME FedWatch Tool now shows a 94% probability of a rate cut in September, with growing expectations for additional cuts in October and December.

Eurozone sentiment data underwhelms
Despite the upward movement in the pair, Euro upside is somewhat limited by weaker-than-expected ZEW Survey data for August. Both the Eurozone and German economic sentiment indexes fell short of market expectations, suggesting ongoing investor pessimism regarding the regional economic outlook.

Geopolitical noise adds pressure to the USD
In an unusual development, White House spokeswoman Karoline Leavitt confirmed that U.S. President Donald Trump is considering legal action against Fed Chair Jerome Powell related to the management of renovation works at the Fed’s headquarters. While the legal challenge itself may not directly impact monetary policy, concerns over Fed independence are fueling additional bearish pressure on the USD.

Outlook
Traders will keep a close eye on speeches from Fed officials Austan Goolsbee and Raphael Bostic later today, which could provide more clarity on future monetary policy. Until then, EUR/USD may remain bid as long as rate cut expectations weigh on the Greenback.