The EUR/USD Remains On The Defensive Above The 1.0700 Level As Traders Await US CPI And ECB Rate Decisions

The EUR/USD pair struggles to advance following Friday's turbulent trading. The major currency fluctuates around 1.0710 during Monday's early Asian session. The US Dollar (USD) ended its eight-week winning streak on Friday, as markets turned cautious in advance of this week's key inflation figure. The US Dollar Index (DXY) continues to trade below the 105.00 level, down 0.14 percent on the day.

The Federal Reserve (Fed) could be persuaded by the positive US data released last week to maintain the interest rate at its September meeting, but markets anticipated one more 25 basis point (bps) rate increase by the end of the year. According to the CME FedWatch Tool, the markets have priced in a 93% chance of a rate hold at the September meeting, and a 43.5% chance of a rate rise at the November meeting.

Initial Jobless Claims in the United States totaled 216,000 for the week ending September 2. This result exceeded market expectations of 234,000 and followed the previous week's amended figure of 229,000 (from 228,000). Wednesday's release of the US Consumer Price Index (CPI) for August will provide additional guidance for investors.

On the other hand, according to data released by Destatis on Friday, the German Harmonised Consumer Price Index (HICP) for August came in at 6.4% YoY, which was in line with market expectations, while the core CPI remained unchanged at 6.0%. In addition, the Eurozone's Gross Domestic Product (GDP) for the second quarter (Q2) grew 0.1% compared to 0.3% in the previous quarter and 0.3% less than anticipated.As investors fret about the possibility of a recession, the Euro experiences a volatile session and extends its losses. The dismal data may persuade the European Central Bank (ECB) to abandon its hawkish posture at the upcoming meeting.

The majority of economists surveyed by Reuters anticipate that the European Central Bank (ECB) will leave interest rates unchanged at its September 14 meeting. The ECB's methodology relies on inbound economic data. In contrast, US economic data relative to Eurozone data increases the likelihood of the Fed's "higher for longer" rate narrative.

In the near future, investors will closely track the publication of the US Consumer Price Index (CPI) for August in search of new impetus. The monthly figure is anticipated to increase by 0.5%, while the monthly core figure is anticipated to remain unchanged at 0.2%. On Thursday, the focus will shift to the ECB's monetary policy. The event could provide the EUR/USD pair with a distinct direction.