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In early European trading on Wednesday, the euro was flat near 1.0990 against the dollar. Traders tended to wait and see ahead of top economic data from the euro zone and the United States. Eurozone second-quarter gross domestic product (GDP) and the U.S. consumer price index (CPI) in July will be closely watched.
Data released by the U.S. Bureau of Labor Statistics on Tuesday showed that the U.S. final demand producer price index (PPI) increased by 2.2% in July, lower than the 2.3% expected, and the previous value was 2.7%. The monthly PPI increased by 0.1% month-on-month, compared with an increase of 0.2% in June. Excluding volatile food and energy prices, core PPI rose 2.4% annually in July, compared with 3.0% in June and below consensus expectations of 2.7%.
The market expects the Federal Reserve (Fed) to cut interest rates by 25 basis points (bps) in September, and a 50 basis point cut in September is not ruled out, but this will entirely depend on the data. Atlanta Fed President Raphael Bostic emphasized on Tuesday that recent economic data gave him “more confidence” that the central bank can get inflation back to its 2% target. However, more evidence is needed before he is ready to support a rate cut.
Across the pond, the euro zone economy is expected to expand 0.3% quarterly in the second quarter and 0.6% annually. Lower-than-expected GDP growth data could weigh on the euro (EUR) against the U.S. dollar (USD).
Reuters reports that most economists surveyed believe that the European Central Bank (ECB) will cut deposit rates twice more this year, in September and December. The European Central Bank’s interest rate cut is expected to be lower than the market had previously expected, which may temporarily limit the euro’s downside. Carsten Brzeski, chief euro zone economist at ING, said: “I expect the European Central Bank to raise its inflation forecast slightly, and it would be strange to continue to cut interest rates. ”
