The euro fell in European trading on Tuesday against a basket of global currencies, retreating from a two-week high versus the US dollar, pressured by profit-taking activity and a reluctance to build new long positions ahead of key eurozone inflation data for August.

The data is expected to clarify the current inflationary pressures facing European Central Bank policymakers, providing crucial evidence on the likelihood of an interest rate cut later this month.

Price Overview

Euro exchange rate today: the euro declined against the dollar by 0.2% to $1.1691, from the opening level of $1.1711, after recording a high at $1.1718.

The euro ended Mondays session up by more than 0.2% versus the dollar, marking a third consecutive daily gain, and hit a two-week high at $1.1736, supported by stronger-than-expected inflation data in Germany, the eurozones largest economy.

US Dollar

The US dollar index rose on Tuesday by about 0.2%, heading toward its first gain in six sessions, rebounding from a five-week low at 97.54 points, reflecting renewed strength in the greenback against a basket of global currencies.

Beyond bargain-buying from lower levels, the recovery in the US dollar comes ahead of a series of key US labor market reports, which will provide decisive evidence on the likelihood of a Federal Reserve rate cut at the September meeting.

European Interest Rates

Five sources told Reuters that the European Central Bank is likely to keep interest rates unchanged next month, though discussions of further cuts could resume in the fall if the eurozone economy weakens.

ECB President Christine Lagarde said recently in Jackson Hole that the tightening cycle implemented in 2022 and 2023 did not lead to recession or sharp rises in unemployment as had historically been the case.

Money market pricing for a 25-basis-point ECB rate cut in September currently remains below 30%.

Eurozone Inflation

To reprice these expectations, investors later today await the release of key eurozone inflation data for August, which will show the extent of inflationary pressures facing ECB policymakers.

At 10:00 GMT, the annual consumer price index for the eurozone will be published, with market forecasts pointing to an increase of 2.1% in August, compared to 2.0% in July. Core CPI is expected to rise by 2.2%, versus 2.3% in the previous reading.

Outlook for the Euro

At Economies.com we expect: if inflation data proves hotter than current market expectations, the likelihood of further ECB rate cuts this year will decline, supporting a stronger euro in the foreign exchange market.