**EUR/USD Breaks Above 1.18: Market Bets on Fed Rate Cuts Propel Rally Toward 1.20**
*Originally reported by TradingNews.com*
The euro pushed past the psychological 1.1800 level against the US dollar in Tuesday’s EU session, extending gains on increased momentum following cooler-than-expected US inflation data. This data has significantly shifted expectations toward interest rate cuts by the Federal Reserve, contributing to the EUR/USD rally and setting the stage for a possible test of the 1.2000 resistance level in the near term.
Here’s a comprehensive breakdown of the key factors driving the current movement in EUR/USD, along with expert insights and outlooks on where the pair might head in the coming weeks.
## US Inflation Data Sparks Fed Rate Cut Bets
One of the biggest catalysts behind the recent EUR/USD surge is the latest reading of US inflation. The Consumer Price Index (CPI) report showed signs of softening inflationary pressures in the US economy during the last quarter.
– Headline CPI rose by just 0.2 percent month-on-month in the latest report, coming in slightly below the forecast of 0.3 percent.
– Core CPI, which strips out volatile food and energy prices, also climbed 0.2 percent monthly, maintaining a stable trend.
– On a yearly basis, headline inflation now stands at 3.1 percent, down from the previous reading of 3.3 percent.
Investors interpreted these figures as confirmation that inflation is cooling at a faster pace than the Fed anticipated earlier in the year, reinforcing expectations that interest rate cuts may begin as early as September.
## Dollar Weakness Fuels Euro Strength
In response to the CPI release, US Treasury yields fell sharply, dragging the dollar index (DXY) back below the 105.00 mark. The drop in yields signals that bond markets are rapidly pricing in a shift in monetary policy. Yield-sensitive currency pairs like EUR/USD have typically performed well in these situations.
– The 10-year US Treasury yield fell to 4.22 percent, its lowest point in over a month.
– The 2-year yield, which is more sensitive to Fed policy expectations, declined to 4.60 percent.
These declines in yields have diminished the appeal of holding US-denominated assets, pushing domestic and international investors toward alternatives such as the euro and other high-yielding or risk-on assets.
## Technical Breakout Above 1.18
EUR/USD broke decisively above the 1.1800 level, surpassing short-term resistance and igniting further technical buying. This breakout has brought bullish traders back into the market, with many targeting the next major resistance near the 1.2000 psychological level.
Technically, the move higher is supported by several key indicators:
– The pair is trading well above its 50-day and 200-day moving averages on the 4-hour and daily charts.
– Momentum indicators such as the Relative Strength Index (RSI) have entered bullish territory while avoiding overbought conditions.
– The breakout occurred on strong volume and confirmed previous consolidation near 1.1750, suggesting sustained bullish momentum.
Some analysts suggest that this push above 1.1800 could be the beginning of a larger upside move as long as fundamentals remain aligned and the dollar remains on the back foot.
## European Central Bank Leaves Rates on Hold
While the Federal Reserve is now seen as inching toward rate cuts, the European Central Bank (ECB) has adopted a more cautious tone. In its latest meeting, ECB policymakers opted to keep interest rates steady, signaling that any future cuts will depend on continued progress in inflation and wage growth moderation.
Key ECB points highlighted in recent speeches and statements include:
– Inflation in the eurozone continues to trend downward, with the latest annual inflation rate reported at 2.4 percent.
– ECB President Christine Lagarde emphasized that while inflation risks have receded, the bank will remain data-dependent in making monetary
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