Ella 
EUR/USD extended gains for the fourth consecutive day, with the Asian market rising to around 1.0760 on Wednesday. The pair found upside support after the European Central Bank (ECB) had internally upgraded its inflation forecasts ahead of Thursday’s policy meeting, an unnamed source said.
The European Central Bank (ECB) will project inflation above 3% in 2024 in its quarterly forecast to its board of governors on Wednesday, the source noted, Reuters reported.
This forecast runs contrary to expectations for a slight decline in inflation. The latest forecast for 2024 exceeds the central bank’s 2% inflation target and beats the 3% forecast in June. It was also higher than the 2.7% figure from a Reuters poll of economists.
The source further mentioned that the interest rate resolution at the ECB meeting remains a challenging issue and no formal recommendations have been made. However, significant forecasts for inflation to exceed 3% in 2024 add weight to the argument for a rate hike.
This appears to confirm concerns that lowering inflation may be more challenging than previously expected. The forecast underscores the potential need for the European Central Bank to take measures to combat rising inflationary pressures.
On the other hand, EUR/USD may be challenged by market caution as traders await U.S. inflation data scheduled for later in the North American session. The release of this data will have a major impact on the foreign exchange market and may influence the direction of the currency pair.
The U.S. Consumer Price Index (CPI) is expected to increase by 0.5% month-on-month, an improvement from 0.2% last month. Additionally, core CPI, which strips out volatile food and energy prices, is expected to be steady at 0.2%.
These inflation data provide an important basis for understanding price trends in the U.S. economy and have a significant impact on market sentiment and the Federal Reserve’s policy decisions. In fact, investors have been considering the possibility of a 25 basis point rate hike by the Federal Reserve at its November or December meeting.
In addition, the Federal Reserve is also expected to keep interest rates rising for an extended period of time. Inflation aberrations could further reinforce hawkish sentiment, which could cause the dollar to strengthen against the euro as the Fed is likely to take steps to combat rising prices.
The U.S. Dollar Index (DXY), which measures the performance of the U.S. dollar (USD) against a basket of six other major currencies, struggled to snap a three-day losing streak. Spot prices are currently trading higher around 104.60. Additionally, the U.S. dollar is expected to remain strong on the back of further growth in U.S. economic activity
On Thursday, U.S. retail sales growth data is expected to slow slightly. Expected growth in August is 0.2%, compared with a 0.7% gain last month. The data may provide insights into consumer spending patterns and influence market sentiment.
