• EUR/USD exhibits sheer strength near 1.1000 as the US Dollar weakens as Fed rate-cut bets increase.
• The Euro gains on expectations that the ECB will cut interest rates more gradually.
• Investors await the US inflation data for fresh guidance on interest rates.

EUR/USD clings to gains around the psychological resistance of 1.1000 in Wednesday’s European session, its highest level in around seven months. The major currency pair strengthens as the near-term outlook of the US Dollar (USD) is subdued due to firm speculation that the Federal Reserve (Fed) will start reducing interest rates in September.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, hovers near a weekly low at 102.55. 

Market expectations for Fed interest rate cuts in September strengthened further after the United States (US) Producer Price Index (PPI) report for July indicated that price pressures are on track to return to the desired rate of 2%. Headline and core PPI, which strips of volatile food and energy items, softened on a monthly as well as annual basis. This suggests that producers are losing pricing power due to deteriorating demand conditions.

On the interest rate guidance, Atlanta Fed Bank President Raphael Bostic said on Tuesday that recent has increased its confidence that inflation will return to 2% but he wants a little more evidence to endorse interest rate cuts. 

For more evidence, market participants will focus on the US Consumer Price Index (CPI) data for July, which will be published at 12:30 GMT. The CPI report is expected to show that monthly headline and core inflation rose by 0.2%. Annual headline and core CPI are estimated to have decelerated by one-tenth to 2.9% and 3.2%, respectively.