EUR/USD strengthens to near 1.1200 as risk appetite returns

• EUR/USD trades in positive territory near 1.1195 in Wednesday’s Asian session.

• US CPI inflation came in slightly below estimates in April. 

• Traders reduce bets on ECB rate cuts after US-China talks. 

The EUR/USD pair gains ground to around 1.1195 during the Asian trading hours on Wednesday. The US Dollar (USD) weakens against the Euro (EUR) after the cooler-than-expected US April inflation data. Traders await the German Harmonized Index of Consumer Prices (HICP) data for April for fresh impetus, which is due later on Wednesday. 

Inflation in the United States (US), as measured by the change in the Consumer Price Index (CPI), declined to 2.3% YoY in April from 2.4% in March, below the market consensus of 2.4%, the Bureau of Labor Statistics reported on Tuesday. This figure registered the lowest since February 2021. The core CPI, excluding volatile food and energy prices, rose 2.8% YoY in April, compared to the previous reading and expectation of 2.8%. The US Dollar lost ground in an immediate reaction to the cooler US CPI report. 

The US and China agreed to reduce tariffs on each other after two days of negotiations in Geneva, Switzerland. The US lowered tariffs on Chinese imports to 30% from 145%, while China cut tariffs on US imports to 10% from 125%. Optimism that a tariff deal between the world's two largest economies could cool the trade war has prompted traders to dial back odds of a recession. This, in turn, could provide some support to the Greenback and create a headwind to the major pair. 

Across the pond, markets reduced bets on European Central Bank (ECB) interest rate cuts on Monday amid easing in trade and geopolitical tensions. Money markets have priced in an ECB deposit facility rate of as much as 1.80% by year-end, returning a few bps above levels seen in mid-April before the ECB suggested it was ready to cut rates in response to the potential adverse economic impact of US tariffs.