Euro Remains Resilient as Markets Brace for ECB Rate Hike

Newsmaker – The euro traded relatively steadily against the US dollar on Tuesday (Sept. 8), with the EUR/USD pair hovering around 1.1625 during the early European session. This limited movement reflects investor caution ahead of the release of US inflation data and the European Central Bank (ECB) interest rate decision later this week.

From the US, a robust labor market report continues to support the dollar. The US economy added 162,000 jobs in August well above the forecast of 56,000 while the unemployment rate held steady at 4.1%. These figures have led markets to price in a nearly 60% probability that the Federal Reserve will raise interest rates at its September meeting.

Market focus now shifts to US Producer Price Index (PPI) and Consumer Price Index (CPI) data. August inflation is expected to show a slight month-on-month acceleration driven by global energy price pressures. If inflation comes in higher than anticipated, the dollar could strengthen, putting downward pressure on EUR/USD. Conversely, softer inflation figures could dampen expectations for a Fed rate hike and provide additional support for the euro.

In Europe, the ECB is expected to raise interest rates by 25 basis points at Thursday's meeting, lifting the deposit rate from 2.25% to 2.50%. Deutsche Bank even projects that the ECB could hike rates again in December, as inflationary pressures particularly from rising energy costs remain a concern.

From a technical perspective, EUR/USD maintains a positive bias as long as it holds above the 1.1615 area and the 100-day moving average near 1.1560. Immediate resistance lies around 1.1710. For now, the euro's trajectory remains heavily dependent on the combination of the ECB's decision and US inflation data. A more hawkish ECB coupled with softer US inflation could push EUR/USD higher, whereas a hot US CPI reading might once again give the dollar the upper hand. (CP)