By Milcah Tanimu

On Thursday, the euro approached an eight-month high while the dollar softened following new data showing a slowdown in US inflation, which has fueled speculation about a potential Federal Reserve rate cut next month.

The yen remained stable at 147.315 per dollar, supported by Japan’s annualized economic growth of 3.1% in Q2, driven by robust consumer spending. Despite retreating from last week’s seven-month high, the yen is significantly stronger than its 38-year low of 161.96 seen in early July, bolstered by Tokyo’s intervention and a surprise rate hike from the Bank of Japan.

In the US, the Consumer Price Index (CPI) indicated a moderate rise, reducing annual inflation to below 3% for the first time since early 2021. This, coupled with a slight increase in producer prices, suggests inflation is easing, though traders are now less confident in the likelihood of aggressive Federal Reserve rate cuts.

Market forecasts show a 64% probability of a 25 basis point (bps) rate cut in September, with a 36% chance of a 50 bps cut. The Federal Reserve is anticipated to implement a total of 100 bps in cuts this year, beginning with gradual reductions to support risk assets, according to the chief economist at the Bank of Singapore.

Meanwhile, the euro held steady at $1.1011, near its recent eight-month peak, and the dollar index stayed close to its recent lows. The Australian dollar rose following strong employment data, while the New Zealand dollar showed some recovery after a rate cut. Conversely, China’s yuan weakened due to disappointing factory output figures.