EUR/USD rebounds from 1.1600 despite market caution ahead of US PPI data

• EUR/USD may lose ground as the US Dollar holds ground ahead of Producer Price Index data due on Wednesday.

• The Trump administration is set to impose a tariff of "a little over 10%" for those smaller countries.

• EU officials have confirmed that negotiations to avoid US tariffs are still underway, though a retaliatory package is being prepared.

EUR/USD halts its five-day losing streak, trading around 1.1610 during the Asian hours on Wednesday. The pair appreciates despite the stable US Dollar (USD), driven by traders’ caution ahead of the upcoming US Producer Price Index (PPI) later on Wednesday. The Fed Beige Book and Industrial Production will also be eyed.

However, the US Dollar may regain its ground as the US inflation report for June reignited concerns about prolonged high Federal Reserve (Fed) interest rates. The US Consumer Price Index (CPI) rose 2.7% year-over-year in June, matching market expectations. Core CPI came in at 2.9%, just below the 3.0% forecast but still notably above the Federal Reserve’s 2% target.

The market sentiment remains cautious amid rising uncertainty surrounding the tariff outlook. US President Donald Trump sent notified 25 countries of new tariff rates set to take effect on August 1st, including major trading partners Canada, Mexico, and the European Union (EU). However, Trump expressed willingness to further engage in trade discussions, indicating the possibility of negotiating with the European Union (EU) and other key trading partners.

On Tuesday, Trump indicated that send tariff letters soon to smaller countries, including nations in Africa and the Caribbean, per Reuters. Trump further stated that his administration would likely set a tariff of "a little over 10%" for those countries.

Trump’s letter, noting a 30% import tariff to the European Union, has raised concerns at the European Central Bank (ECB), which is now expected to present a more pessimistic outlook next week than it did in June. Despite this, traders remain confident that the ECB will keep interest rates unchanged at its upcoming meeting.

Meanwhile, EU officials have confirmed that negotiations to avoid tariffs are still ongoing. However, a retaliatory package is being prepared nonetheless, potentially targeting up to €72 billion worth of US goods with tariffs, targeting aircraft and alcohol.