EUR/USD climbs to 1.1700 as ECB holds steady, US CPI reinforces Fed cut bets

The Euro (EUR) reverses sharply against the US Dollar (USD) on Thursday, snapping a two-day losing streak and climbing back above the 1.1700 mark as traders digest the European Central Bank (ECB) policy announcement and US inflation data.

The ECB maintained its key policy rates, including the Main Refinancing Rate at 2.15% and the Deposit Facility Rate at 2.00%, aligning with market expectations. The accompanying statement emphasized that inflation is currently around the 2% target, while the outlook remains "broadly unchanged."

• The ECB now sees core inflation at 2.4% in 2025, before easing to 1.9% in 2026 and 1.8% in 2027, suggesting that underlying price pressures remain persistent in the medium term.
• On the growth front, the central bank lowered its 2026 Gross Domestic Product (GDP) projection to 1.0%, while keeping the 2027 forecast unchanged at 1.3%, signaling a more cautious stance on the recovery.
• Policymakers reaffirmed that future interest rate decisions will be data-dependent, based on the evolving inflation outlook, underlying dynamics, and incoming macroeconomic and financial data.

In the US, the August Consumer Price Index (CPI) data came in broadly in line with expectations, though the monthly headline figure ticked higher. Headline CPI rose 0.4% MoM, up from July's 0.2% and slightly above the 0.3% consensus. On a yearly basis, headline inflation held steady at 2.9%, matching forecasts. Core CPI, which excludes food and energy, increased 0.3% MoM and 3.1% YoY, both exactly in line with market expectations.

While the data showed no reacceleration in core inflation, the firmer headline reading suggests price pressures remain sticky. Markets reacted calmly to the report, with Fed rate-cut expectations firming slightly. According to CME's FedWatch tool, the odds of a 25 basis point rate cut in December rose to 94%, up from 90% before the release. Traders also continue to fully price in three Fed rate cuts by the end of 2025.