The dollar drifted lower in European trade on Friday as EUR/USD edged up to 1.1553, with traders reassessing Fed policy after softer US inflation data. Rate-hike odds for September have fallen from 55% to 35%, while the pair stays boxed in a tight technical range.
The dollar eased in European morning trade on Friday, with EUR/USD trading up 0.2% to 1.1553, leaving the pair flat for the week. It continues to hold just below its 100-day moving average, with buyers yet to force a technical break higher.
Fed rate-hike odds fall
Soft US inflation data is shaping Fed policy expectations. Data released Thursday showed producer prices were flat in July, adding to a benign CPI report and suggesting inflationary pressures are not yet accelerating. As a result, markets now price a 35% probability of a 25-basis-point Fed rate hike in September, down from 55% a week earlier, and moderate inflation reduces the need for near-term policy tightening. The initial inflationary impact of the Middle East conflict and elevated energy prices also appears to be easing, though uncertainty over a potential agreement and the reopening of the Strait of Hormuz still poses risks.
EUR/USD holds a tight range
EUR/USD stood at 1.1537 on Friday as markets digested the data.
On the H4 chart, the pair is consolidating between 1.1511 and 1.1545, with the upper boundary being tested from below. An upside break would open a corrective move toward 1.1570 before a decline to 1.1492. A downside break instead points toward 1.1492, with scope to extend to 1.1400. The MACD signal line sits below zero and points down, supporting the bearish scenario.
Broader market signals mixed
However, the picture beyond EUR/USD is inconsistent. USD/JPY fell 0.2% to 159.13, still on track to end the week roughly 0.8% higher. GBP/USD rose 0.3% to 1.3520, and AUD/USD gained 0.2% to 0.7070. Meanwhile, WTI crude rose 1.2% to $82.25, even as the dollar itself moved lower. 10-year Treasury yields climbed 2 basis points to 4.66% over the same stretch. That divergence leaves the greenback without a clear directional signal heading into the weekend.
Sources: Investinglive, ActionForex
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