EUR/USD lacks direction around 1.0980-85 in early Friday trading, following a volatile Thursday that began with a fresh two-week high before concluding with modest gains. Notably, the US Dollar's upbeat close, primarily due to higher yields, fails to entice Euro bears due to uncertainty about the Federal Reserve's (Fed) next move and conflicting European Central Bank (ECB) concerns.

Thursday's Economic Bulletin from the European Central Bank (ECB) revealed a highly uncertain outlook for the bloc's economic development and inflation. The publication also discussed the persistent decline in "too high inflation" and the deterioration of the near-term economic outlook.

The US Consumer Price Index (CPI) for July, on the other hand, matched market expectations to reprint 0.2% MoM figures. However, the annual CPI increased by a slower-than-anticipated 3.3% to 3.2% YoY for the given month, compared to previous readings of 3.0%, signifying the first annual rate acceleration in 13 months. In addition, the CPI excluding food and energy, also known as the Core CPI, remained unchanged at 0.20% MoM while meeting market expectations, but slowed to 4.7% YoY from 4.8% in June and the anticipated figure.

Notable is that US Initial Jobless Claims increased to 248K for the week ending August 4, compared to 230K expected and 227K previously, while Continuing Jobless Claims decreased to 1.684M from 1.692M (revised), versus 1.71M market expectations.

Overall, US data were negative, and as a result, a number of Federal Reserve (Fed) policymakers miscommunicated the US central bank's hard-won victory on inflation. Nevertheless, their tones appeared less convincing to sceptics, who fueled US Treasury bond yields with their risk-averse concerns about China.

President Patrick Harker of the Federal Reserve Bank of Philadelphia, President Susan Collins of the Federal Reserve Bank of Boston, and President Raphael Bostic of the Federal Reserve Bank of Atlanta all raised a glass to the Federal Reserve's progress in its fight against inflation and to the milder US CPI. However, San Francisco Fed President Daly deflected the applause by stating, "There is still more work to be done."

A spokesperson for the European (EU) Commission stated in an email cited by Reuters that the bloc is aware of the US Executive Order prohibiting outbound investment (involving Chinese technology firms). The official also mentioned being in direct contact with the U.S. administration and expressing a willingness to work together on the issue. Prior to that, the Financial Times (FT) reported that UK Prime Minister (PM) Rishi Sunak was willing to follow the United States' lead in limiting investment in Chinese technology companies.

Therefore, the possibility of further geopolitical conflicts between the West and China weighed on sentiment. In addition, rumours of slower economic growth in leading economies and recession concerns in China, Germany, and the United Kingdom drove the dollar bears back.

In the near future, a light European economic calendar will keep EUR/USD at the discretion of US data, with the US Producer Price Index (PPI) for July preceding the initial readings of the University of Michigan's (UoM) Consumer Sentiment Index (CSI) for August. The UoM 5-Year Consumer Inflation Expectations for the specified month will also be crucial. Primarily, the central bank updates and China news will be crucial in determining the direction of the price.

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