The EUR/USD reached a one-month high on Thursday, approaching the 1.0903/16 resistance level. This surge came after below-forecast U.S. inflation data raised market expectations of potential rate cuts by the Federal Reserve, with the possibility of the euro reaching 1.1000.
In June, the CPI figures for the U.S. showed a month-on-month decrease of -0.1%, falling short of the estimated +0.1%. Similarly, the core CPI also came in below expectations at +0.1% versus the estimated +0.2%.
As a result of these data releases, U.S. Treasury yields dropped to their lowest levels in four months, while December 2025 SOFR futures hit a 4-month high. Investors interpreted these movements as a signal that the Fed might be moving towards implementing rate cuts.
Market indicators now suggest a 60bps cut in rates for 2024, with a high probability of the first cut occurring in September according to the CME’s FedWatch Tool. This shift in rate expectations has narrowed the yield advantage of the dollar over the euro, with German-U.S. 2-year spreads hitting their tightest levels since early March.
Looking ahead, market focus will be on the June PPI, July University of Michigan data, and June retail sales figures. Reports indicating increasing disinflation and weaker growth could further bolster expectations of a Fed rate cut, potentially pushing the EUR/USD pair towards 1.1000.