Euro steady awaiting rate hike

The EUR/USD pair gains momentum and trades around 1.0750 during the early European session on Thursday. Traders shrugged off the upbeat US inflation data and await the European Central Bank (ECB) interest rate decision on Thursday. The markets anticipate the ECB to hold the interest rate unchanged at its September meeting.

A majority of economists by Reuters poll between 5 and 7 September anticipated the ECB to maintain interest rates on Thursday, but with the mood altering, money markets now priced in a 65% odds of an increase, which is expected to be the last in a cycle that began in July 2022. Investors will take cues from the ECB Present Lagarde speech later in the day. The hawkish comments from ECB policymakers might boost the Euro against the US Dollar (USD) and act as a tailwind for the EUR/USD pair.

On the US dollar front, data released on Wednesday showed that the headline inflation in August hit the highest monthly gain in 14 months with the US Consumer Price Index (CPI) rising 0.6% MoM from 0.2% in the previous reading. The annual figure came in at 3.7% from 3.2%, better than expected. The core CPI, which excludes volatile food and energy prices climbed 0.3% MoM from 0.2% in the previous month. The annual core CPI came in at 4.3% versus 4.7% prior.

Markets believe that the Federal Reserve (Fed) will hold interest rates unchanged at next week's FOMC meeting. However, the figures imply that the Fed should be on the lookout for any re-acceleration in inflation in the next months. According to the CME Fedwatch Tool, investors have priced in 97% odds of interest rate unchanged in September at 5.25%-5.50%. However, the possibility of a rate hike in the November meeting increased to 49.2%.

Market participants will closely watch the ECB interest rate decision at 12:15 GMT and ECB President Lagarde's press conference at 12:45 GMT. Also, the US weekly Initial Jobless Claims, the Producer Price Index (PPI) and monthly Retail Sales will be released on Thursday. These key events might trigger volatility across the market. Traders will find trading opportunities around the EUR/USD pair.