EUR/USD trades above 1.1650, rebounds after losing nearly half a percentage point

• EUR/USD edges higher as the US Dollar faces challenges amid rising expectations of further Fed rate cuts.
• The pair registered nearly 0.5% losses on Thursday following stronger US economic data.
• The Euro could find support from the potential widening of the Fed-ECB interest rate differential.

EUR/USD retraces its recent losses from the previous session, trading around 1.1660 during the Asian hours on Friday. The pair appreciates as the US Dollar (USD) struggles amid rising expectations that the Federal Reserve (Fed) will cut rates in September. CME's FedWatch tool indicates that Fed funds futures traders are now pricing in nearly a 92% chance of a 25 basis point (bps) interest rate cut at the September meeting.

However, the EUR/USD registered nearly 0.5% losses on Thursday as the US Dollar gained ground following stronger US economic data. Furthermore, the US July Retail Sales data and the preliminary Michigan Consumer Sentiment Index will be eyed later in the North American session.

The US Producer Price Index (PPI) rose 3.3% YoY in July, versus the 2.4% increase prior. This reading came in stronger than the expectations of 2.5% by a wide margin. The annual core PPI climbed 3.7% in July, compared to 2.6% in June and the 2.9% expected. US Initial Jobless Claims for the week ending August 9 fell to 224K versus 227K prior (revised from 226K). This figure was below the market consensus of 228K.

Traders expect that the European Central Bank (ECB) has ended its easing cycle in July after eight cuts over the past year, leaving borrowing costs at their lowest since November 2022. However, another rate cut by the ECB could be eyed in 2025. The Euro received support from the potential for the interest rate differential between the Fed and the ECB. The European Union (EU) economic docket will be absent as there are no scheduled events due to the Feast of Our Lady of Heaven.