Euro climbs to near three-week high amid US Dollar weakness and Fed rate cut bets

• The Euro edges higher for a second day, climbing above 1.1700 on Wednesday.
• The US Dollar is under pressure after inflation data boosted Fed rate cut expectations for September.
• Traders await Eurozone preliminary Q2 GDP and Employment Change, along with US Jobless Claims and PPI on Thursday.

The Euro (EUR) extends gains for the second consecutive session on Wednesday, climbing above $1.1700 to its highest level in nearly three weeks, supported by broad US Dollar (USD) weakness after the latest US Consumer Price Index (CPI) report. At the time of writing, EUR/USD is trading near 1.1720 during the American session, up around 0.30% on the day.

The Greenback is on the defensive after July inflation figures reinforced expectations of an imminent Federal Reserve (Fed) rate cut in September. Data released on Tuesday showed that the US headline CPI rose in line with monthly forecasts, while the annual rate eased slightly to come in just below expectations. The more notable development was in the core measure, which excludes food and energy, where both the monthly and yearly increases were marginally above projections, underscoring persistent underlying inflation pressures.

In response, the US Dollar Index (DXY), which tracks the value of the Greenback against a basket of six major currencies, extended its losing streak to a second day, dropping to levels last seen over two weeks ago near 97.70.

The US Dollar is also weighed down by ongoing tariff tensions and rising fiscal worries. A Treasury report released Tuesday confirmed that US national debt has exceeded $37 trillion for the first time, while the Congressional Budget Office estimates that recently enacted legislation signed by President Trump could add about $4.1 trillion to the debt over the next decade. Political noise has further pressured the currency after President Trump escalated his criticism of Federal Reserve Chair Jerome Powell, posting on Truth Social that he is "considering allowing a major lawsuit against Powell to proceed" over what he described as the "horrible, and grossly incompetent" handling of Fed building projects. The comments have injected fresh political risk into markets and reignited debate over the Fed's independence.

On the Euro side, sentiment remains mixed despite the currency's recent gains. The ZEW Economic Sentiment Index for the Eurozone dropped sharply to 25.1 in August from 36.1, while Germany's reading fell to 34.7 from 52.7, reflecting increased caution over the growth outlook. Meanwhile, Germany's Harmonized Index of Consumer Prices (HICP), released on Wednesday by the German statistics office Destatis, was in line with expectations, rising 0.4% on the month and holding steady at 1.8% YoY.

Looking ahead, traders will turn their attention to Thursday's preliminary second-quarter Gross Domestic Product (GDP) data from the Eurozone, the bloc's preliminary Employment Change reading for Q2, as well as US weekly jobless claims and Producer Price Index (PPI) figures. In addition, the upcoming US-Russia peace talks remain a potential source of broader market volatility, with any developments likely to influence risk sentiment and the near-term trajectory of EUR/USD. European and Ukrainian leaders are scheduled to speak with President Trump ahead of his summit with Russian President Vladimir Putin.