Euro under fire ahead of US inflation data

The EURUSD is extending its losing spell for the fourth trading day and touched a fresh year-to-date (YTD) low of 1.0592 on Wednesday amid caution ahead of the US Consumer Price Index (CPI) data for October later in the day.

The CPI report is expected to show that the annual headline inflation accelerated to 2.6% from 2.4% in September. The core CPI – which excludes volatile food and energy prices – rose steadily by 3.3%.

The inflation data will influence market expectations for the Federal Reserve’s likely monetary policy action in December.

The Fed is expected to cut interest rates again by 25 basis points (bps) to 4.25%-4.50% next month, according to the CME FedWatch tool. However, the likelihood has eased to 62% from 70% a week ago.

Market expectations for a Fed rate cut in December have lately faded as investors expect that the US economic outlook will improve and price pressures will escalate under President-elect Donald Trump’s administration.

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Trump vowed to raise import tariffs by 10% and lower corporate taxes in his election campaign. This move will increase demand for domestic goods and boost labour demand and business investment, eventually prompting inflationary pressures and forcing the Fed to follow a more gradual rate-cut cycle.

On Tuesday, Minneapolis Federal Reserve Bank President Neel Kashkari cautioned at a Yahoo! Finance event that, “if inflation surprises to the upside before December, that might give us pause.”

Kashkari added that the monetary policy is “modestly restrictive right now,” and expects economic growth to persist.

In Wednesday’s session, investors will also focus on speeches from a slew of Fed officials for fresh guidance on interest rates.