EUR/USD gathers strength above 1.1100, Eurozone inflation data and Fed rate decision in focus

• EUR/USD gains traction near 1.1125 in Wednesday's Asian session. 
• The Fed is widely expected to reduce the benchmark overnight interest rate on Wednesday. 
• Investors await the Eurozone HICP data, which is expected to show an increase of 2.2% YoY in August. 

The EUR/USD pair trades on a stronger note around 1.1125 during the Asian trading hours on Wednesday. The rising expectation of the US Federal Reserve (Fed) deeper rate cut provides some support to the major pair. The Eurozone Harmonized Index of Consumer Prices (HICP) data and the Fed monetary policy meeting will be the highlights on Wednesday.

The markets have remained split on whether the Fed should cut interest rates by 25 or 50 basis points (bps). Futures on the Fed funds rate have priced in nearly 60% odds of a 50 bps rate cut by the Fed at its September meeting on Wednesday, up from 45% last Friday, according to the LSEG.

Boris Kovacevic, global macro strategist at Convera in Vienna, said, "If they go 50, there is a chance that the Fed has some information that investors don't have and that recession risks are more likely than currently anticipated and priced in."

The US Retail Sales unexpectedly rose 0.1% MoM in August versus 1.1% prior, better than the expectation of -0.2%, the US Census Bureau showed Tuesday. Meanwhile, Industrial Production jumped 0.8% MoM in August, compared to a decline of 0.6% in July, above the consensus of 0.2%. 

Less dovish interest rate guidance from European Central Bank (ECB) officials underpins the Euro (EUR) against the USD. ECB policymakers emphasized that the central bank will remain data-dependent when it comes to making future monetary policy decisions.

Investors will monitor the Eurozone HICP inflation data, which is due later on Wednesday. The headline HICP is expected to show an increase of 2.2% YoY in August, while the core HICP is estimated to show a rise of 2.8% in the same period.