Title: US Dollar Rises as CPI Looms, Euro and Pound Slip: Forex Market Outlook
Original Author: Mitrade News Team
Source: Mitrade News (https://www.mitrade.com/insights/news/live-news/article-1-1114028-20250911)
As financial markets braced for the upcoming release of the U.S. Consumer Price Index (CPI), the U.S. Dollar gained marginal strength early Tuesday. The dollar climbed against major peers, while the euro, British pound, and other currencies experienced slight declines, reflecting cautious sentiment among investors ahead of significant economic data that could sway the Federal Reserve’s interest rate stance.
U.S. Dollar Gains Ground
The U.S. Dollar Index (DXY), which tracks the dollar’s performance against a basket of six major currencies, edged higher by 0.1 percent to 105.04. This upward movement followed a six-session winning streak that marked the longest rally since August 2023. Investor focus remained firmly on key inflation data set for release on Wednesday. Markets speculated that a stronger-than-expected CPI reading could bolster the Federal Reserve’s case for maintaining higher interest rates for longer.
Key Drivers Behind the Dollar’s Momentum:
– Expectation of sustained high-interest rates due to stubborn inflationary pressures
– Reduced expectations of rate cuts in 2025, with markets currently pricing in only about 35 basis points of easing
– Continued resilience in U.S. labor market data, which supports a hawkish monetary policy stance
– Rising Treasury yields, as bond investors factor in fewer rate cuts over the medium term
Upcoming CPI Data and Market Expectations
The U.S. CPI report is expected to show an annual inflation rate of 3.6 percent for August, up from 3.2 percent in July. On a monthly basis, prices are projected to rise by 0.6 percent. The core CPI, which strips out volatile food and energy components, is predicted to show a 0.2 percent monthly gain and a 4.3 percent increase year-over-year.
If confirmed, these figures would suggest that inflationary pressures remain persistent, reinforcing the view that the Federal Reserve is unlikely to cut rates in the near term. Analysts at global banks have begun to push back their rate-cut predictions, with expectations now centered on mid-to-late 2025 for the beginning of a potential easing cycle.
Federal Reserve Rate Outlook:
– Markets currently assign a 93 percent probability that the Fed will leave rates unchanged at the upcoming September meeting
– The Fed’s dot plot is expected to reflect fewer rate cuts in 2025 compared to earlier projections
– Chair Jerome Powell has reinforced the need for more economic data to validate the disinflation trend
– Should inflation remain sticky, the central bank may consider a hike or choose to maintain elevated rates through 2024
Euro Under Pressure
The euro weakened slightly against the U.S. dollar, with the EUR/USD pair slipping to around 1.0710. This decline reflects market hesitancy ahead of the European Central Bank’s (ECB) monetary policy meeting on Thursday.
Concerns Influencing the Euro:
– Weak eurozone economic activity, particularly in Germany and France
– Lower-than-expected business sentiment and inflation readings across the bloc
– Expectations that the ECB may pause its rate hiking cycle
– Projections that the ECB could begin cutting rates ahead of the Federal Reserve, potentially as early as mid-2024
While economists remain divided, a small majority anticipate another 25 basis point rate hike from the ECB in its final 2023 meeting, although some believe that weakening economic conditions might delay any further tightening.
British Pound Slips
Similar to the euro, the British pound came under modest selling pressure, declining to 1.2460 against the U.S. dollar. Traders weighed soft UK economic indicators against the Bank of England’s (BoE) hawkish tone.
Factors Impacting the Pound:
Read more on EUR/USD trading.