EUR/USD retreats as US Dollar rebounds on hotter-than-expected PPI inflation

• EUR/USD drops towards 1.1650, down 0.45% on the day, snapping a two-day winning streak.
• The US Dollar Index (DXY) rebounds above the 98.00 psychological mark after hitting a two-week low.
• US PPI data shows inflation rising sharply in July, with both headline and core readings well above expectations.

The Euro (EUR) weakens against the US Dollar (USD) on Thursday, snapping a two-day winning streak as a hotter-than-expected US Producer Price Index (PPI) print fuels a rebound in the Greenback. The latest US economic data painted a picture of resilient labor market conditions alongside a sharp acceleration in wholesale inflation, tempering expectations for aggressive Federal Reserve rate cuts in September.

At the time of writing, the EUR/USD pair is trading around 1.1653, down 0.45% on the day. The Euro was already under mild pressure after Eurozone data failed to sustain momentum above the 1.1700 handle. Meanwhile, the US Dollar Index (DXY), which tracks the value of the Greenback against a basket of six major currencies, is recovering modestly after falling to over a two-week low, climbing back above the 98.00 psychological mark.

US Labor Department figures showed Initial Jobless Claims fell to 224K in the week ending August 8, beating expectations of 228K and down from 227K the previous week, while Continuing Jobless Claims eased to 1.953 million from 1.968 million, slightly below the forecast of 1.96 million.

On the inflation front, July's Producer Price Index (PPI) surged 0.9% MoM, well above the 0.2% forecast and the flat reading in June, marking the largest monthly gain since June 2022. This lifted the annual rate to 3.3%, beating expectations of 2.5% and accelerating from 2.4% previously.

Core PPI, which excludes food and energy, also rose 0.9% MoM, topping the 0.2% estimate and the prior month's flat reading, pushing the yearly rate to 3.7% from 2.6% in June, above the 2.9% consensus.

In the Eurozone, Eurostat's flash estimate showed Gross Domestic Product (GDP) expanding 0.1% QoQ in Q2, matching market forecasts and unchanged from the prior reading. On an annual basis, growth held steady at 1.4%, also in line with expectations.

Eurozone employment rose 0.1% QoQ in the second quarter, in line with market expectations but easing from the 0.2% growth seen in the first quarter. On a yearly basis, employment growth held steady at 0.7%, marginally above the anticipated 0.6% and matching the pace recorded in the previous quarter.

Meanwhile, Industrial Production in the bloc fell 1.3% month-on-month in June, a sharper drop than the 1.0% decline projected, erasing May's upwardly revised 1.1% increase from the initially reported 1.7%. Year-on-year, output growth slowed markedly to 0.2%, missing the 1.7% forecast and down from a revised 3.1% in May (previously 3.7%), underscoring continued fragility in the Eurozone's manufacturing sector.