The euro and the British pound are holding their ground against the US dollar, though upward momentum in both European currencies has faded following recent gains. Traders remain reluctant to open new positions ahead of the July US inflation report, a release that could reshape expectations for the Federal Reserve's policy path. The stakes for the dollar are particularly high given that both the European Central Bank and the Bank of England have already begun cutting interest rates — the ECB in June and the BoE in August — shifting market attention to how quickly the Fed might follow suit.

Recent US labour market data has reinforced a cautious tone. A soft ADP employment report and a decline in the ISM employment component both point to a gradual cooling in hiring conditions, adding to signs that the post-pandemic labour market is normalising.

US CPI Takes Centre Stage

Today's primary focus is the US Consumer Price Index (CPI). Consensus forecasts suggest annual headline inflation eased to 3.4% in July, down from 3.5% in the prior month. On a monthly basis, prices are projected to rise 0.1%, following a 0.4% decline in June. Core CPI, which excludes volatile food and energy components and is closely watched for underlying price trends, is expected to come in at 2.5% year-on-year and 0.2% month-on-month.

A softer-than-expected reading would likely bolster expectations that the Fed will move toward monetary policy easing, adding pressure on the dollar. Conversely, if inflation exceeds forecasts or proves more persistent, the greenback could find fresh support.

Final inflation figures for Germany and Italy are also scheduled for release in Europe today, though their market impact is expected to remain limited unless they deviate meaningfully from preliminary estimates.

EUR/USD

EUR/USD has traded within a relatively narrow 1.1500–1.1580 range in recent sessions. Technical analysis points to a possible retest of the lower boundary, as a Dark Cloud Cover candlestick pattern has formed on the daily timeframe. Should sellers push the pair firmly below 1.1500, a downward extension toward 1.1430–1.1460 becomes more likely. On the upside, weaker US inflation data could lift the pair toward 1.1600–1.1620. The interest rate gap between the Fed and the ECB — which delivered its first rate cut of the current cycle in June and has signalled a data-dependent approach to further moves — remains a key driver of the pair's broader direction.

Key events for EUR/USD:

• Today at 09:00 (GMT+3): German Consumer Price Index (CPI)
• Today at 11:00 (GMT+3): Italian Harmonised Index of Consumer Prices (HICP)
• Today at 15:30 (GMT+3): US Consumer Price Index (CPI)

GBP/USD

GBP/USD buyers succeeded in driving the pair to a new local high near 1.3500. Technical analysis suggests room for further gains toward 1.3540–1.3560 if the 1.3480–1.3500 zone holds as support. However, stronger-than-expected US inflation data could underpin the dollar and prompt another test of the 1.3400 level. The Bank of England's August rate cut, its first since 2020, has narrowed the policy differential with the United States, adding a further dimension to the pair's medium-term outlook.

Key events for GBP/USD:

• Tomorrow at 09:00 (GMT+3): UK GDP
• Tomorrow at 14:00 (GMT+3): Northern Ireland's monthly GDP tracker
• Tomorrow at 21:00 (GMT+3): US federal budget execution report

Outlook

EUR/USD and GBP/USD are holding firm after their recent advances, but their next directional move hinges largely on today's US CPI release. A below-consensus print could intensify expectations of Fed easing and weigh on the dollar, opening the door for further gains in European currencies. A hotter-than-expected reading, on the other hand, could provide the dollar with renewed strength and increase the likelihood of both pairs pulling back toward their nearest support levels. Tomorrow's UK GDP data will offer additional context for sterling's fundamental backdrop.