Euro holds mild gains above 1.1200 as US Dollar drifts with US CPI on tap

• EUR/USD holds just above 1.1200 after bouncing from 17-month lows near 1.1150 earlier this week.
• The Euro recovery is more due to US Dollar weakness ahead of the release of US inflation data than to EUR strength.
• High Oil prices and ongoing concerns about France's fiscal stability are acting as headwinds for Euro rallies.

The Euro (EUR) is showing a frail recovery against the US Dollar (USD) on Tuesday, due more to the Greenback’s weakness ahead of the release of the US inflation data than to any noticeable Euro strength. The EUR/USD pair hovers just above 1.1200, after bouncing from 17-month lows near 1.1150 earlier in the week, although it maintains its broader bearish structure intact.

The US Dollar is trimming recent gains against its main rivals on Wednesday, as investors brace for the release of September’s US Consumer Price Index (CPI) figures. Consumer inflation is expected to have accelerated to a 3.6% year-over-year (Y-o-Y) growth from 3.4% in August, with core inflation showing a more moderate uptick to 2.5% from 2.4% in the previous month.

Fed tightening expectations are the main driver for the US Dollar

Apart from that, the Federal Reserve’s (Fed) Vice Chair of Supervision, Michelle Bowman, is due to speak at the IMF Annual Summit in Bangkok and might provide further clues about the central bank’s monetary policy. On Tuesday, the influential New York Fed President, John Williams, played down market speculation about further interest rate hikes in 2027, putting additional pressure on the US Dollar.

The common currency, on the other hand, faces serious headwinds, namely the high Oil prices and the ongoing concerns about France, which so far are capping any recovery attempt. European Central Bank (ECB) President Christine Lagarde urged the French government to consolidate its fiscal policy and discarded any intervention in bond markets to alleviate pressure on French debt.

Eurozone data released on Wednesday added to evidence of the inflationary impact of high energy prices, keeping pressure on the ECB to tighten its monetary policy further. German Wholesale Price Index accelerated to 1.9% in September from 0.9% in August, against expectations of a moderate slowdown to 0.7%. In Spain, the Harmonised Index of Consumer Prices (HICP) has grown at a 0.6% pace in September and 5% year-on-year, unchanged from the previous month. The impact of these releases on the Euro has been marginal.