EUR/USD rises on Greenback weakness as PPI paves the way for Fed cuts

• EUR/USD rallied on a weakening Greenback on Thursday.
• US PPI inflation data failed to spark any major moves, but remained steady.
• The market's Fed-centric tilt continues unabated as the wait for rate cuts rolls on.

EUR/USD found higher ground on Thursday, rising back above the 1.1050 level as markets lean into a risk-on stance after US Producer Price Index (PPI) figures kept up market hopes for an opening volley from the Federal Reserve (Fed) next week. Markets are confident that the Fed will be kicking off a rate cutting cycle on September 16.

Forex Today: An impasse is likely ahead of the FOMC meeting

EU data remains inconsequential on Friday, and Euro traders will be taking a bit of a breather after the European Central Bank (ECB) dropped its main reference rate to 3.65% from 4.25% on Thursday. The University of Michigan's Consumer Sentiment Index will give traders on the US side one last glimpse into how consumer's feel about the overall US economy before wrapping up the trading week.

US PPI rose to 0.2% MoM in August, with core PPI accelerating to 0.3% MoM. Headline PPI was forecast to rise to 0.1% from the previous 0.0%, while core PPI was expected to rise to 0.2% from July's -0.2% contraction. Despite the near-term upswing, annualized PPI inflation figures were much more attractive to investors, with YoY headline PPI easing to 1.7% from the previous period's revised 2.1%, and ticking below the expected 1.8%. Core annualized PPI also beat the expected print, holding steady at 2.4% YoY versus the expected 2.5% uptick.

US Initial Jobless Claims also rose slightly higher for the week ended September 6, increasing to the expected 230K from the previous week's revised 228K. 

With PPI inflation remaining tame and the number of unemployment benefits seekers holding firmly in tepid territory, little lies in the way of a first rate cut from the Federal Reserve (Fed) on September 18. The Fed is broadly expected to deliver a 25 bps cut to kick off 2024's late-starting rate cut cycle. According to the CME's FedWatch Tool, rate markets are pricing in over 80% odds of the Fed cutting by a quarter point next week, with a slim 20% still leaning into hopes for an initial double-cut for 50 bps. Rate traders also overwhelmingly expect the Fed to deliver four cuts in total, with December's rate call expected to land between 425 and 450 bps.

EUR/USD price forecast

Thursday's rally comes as welcome relief to EUR/USD bulls as the pair recovers from a mid-week plunge toward the 1.1000 handle. Despite a near-term decline from 13-month highs set in late August near 1.1200, short pressure is facing significant challenges from Fiber bidders, and the pair refuses to dip all the way back to the 50-day Exponential Moving Average (EMA) at 1.0984.

EUR/USD daily chart