EUR/USD sheds weight after hot CPI print shreds rate cut bets

• EUR/USD accelerated into the low side on Tuesday after US CPI inflation flashed its first warning sign.
• Fed rate cut hopes are withering on the vine as rising price pressures shred investor optimism.

EUR/USD backslid on Tuesday, falling over eight-tenths of one percent and tumbling into its lowest bids in nearly three weeks. Investors repriced their bets on a September rate cut from the Federal Reserve (Fed) after US Consumer Price Index (CPI) inflation rose in June, reversing deflationary progress.

Rising prices sink Fed rate cut hopes

U.S. Consumer Price Index (CPI) inflation increased gradually through the end of the second quarter. Although the figures generally met or even beat expectations, investors continue to see the impact of rising prices. In June, the annualized headline CPI inflation rate rose to 2.7% year-over-year, moving away from the Federal Reserve's target range of 2%. With inflation persisting, expectations for an early rate reduction by the Federal Reserve have diminished.

According to the CME's FedWatch Tool, market participants now fully anticipate the Federal Reserve to maintain current rates at the July meeting. Additionally, expectations for a rate cut in September have decreased following the CPI release, with a 44% probability that rates will remain unchanged. Nevertheless, markets remain optimistic about the possibility of two rate cuts in 2025, with an 80% likelihood of at least a quarter-point reduction in October, followed by a subsequent rate adjustment in December.

EUR/USD daily chart