Euro declines ahead of Eurozone HICP inflation data

EUR/USD depreciates after flattening in the previous day, trading around 1.1390 during the European hours on Wednesday. The Euro (EUR) remains weaker ahead of Eurozone Harmonized Index of Consumer Prices (HICP) data due to be released later in the day.

The Euro loses ground as inflation cools faster than expected across Germany, France, and Italy, lowering the odds that the ECB will keep interest rates high. In Germany, June's inflation dropped to 2.3% from May's 2.6%, coming in below the 2.5% rate markets had anticipated.

The EUR/USD pair loses ground as the US Dollar (USD) strengthens against the Euro (EUR) on market caution amid escalating geopolitical friction. US-Iran Doha peace talks are under a cloud after US negotiators Jared Kushner and Steve Witkoff arrived in Qatar to meet with mediators. Tehran’s subsequent announcement that it will not meet directly with the US envoys has dimmed prospects for a swift or lasting resolution, keeping geopolitical risk premiums alive and well in the market.

Rising hawkish sentiment surrounding the Federal Reserve's (Fed) policy outlook continues to support the upside of the Greenback. The CME FedWatch tool shows that fed funds futures are now pricing in a nearly 67% chance of an interest rate hike by September.

The upcoming speech from Federal Reserve (Fed) Chairman Kevin Warsh at the ECB Forum in Sintra. On the data front, the ADP private employment report and the ISM Manufacturing PMI data will be eyed later in the day, followed by Thursday’s Nonfarm Payrolls (NFP) figures.