EUR/USD holds ground above 1.0750 on leaked ECB inflation forecast, US CPI eyed

• EUR/USD continues to extend gains ahead of US CPI releases.
• Euro strengthened since an unnamed source claimed that the ECB has internally raised its inflation projections in 2024.
• Market caution ahead of the US inflation data could provide support for the US Dollar (USD).

EUR/USD extends gains for the fourth successive day, trading higher around 1.0760 during the Asian session on Wednesday. The pair is experiencing upward support since an unnamed source claimed that the European Central Bank (ECB) has internally raised its inflation forecasts ahead of the ECB’s policy meeting on Thursday.

According to Reuters, the source has indicated that the European Central Bank's (ECB) quarterly projections, which are set to be presented to its Governing Council on Wednesday, will project inflation to be above 3% in 2024.

This projection contradicts expectations for a slight reduction in inflation. The updated 2024 projection exceeds the central bank's 2% inflation target and surpasses the 3% forecast made in June. It also stands higher than the 2.7% figure seen in a Reuters poll of economists.

The source further mentioned that the rate decision for the ECB meeting was still a challenging matter, and formal proposals had not yet been put forth. However, the significant projection of inflation exceeding 3% in 2024 adds weight to the argument for a rate hike.

It appears to confirm concerns that bringing down inflation may be more challenging than previously anticipated. This projection underscores the potential need for the ECB to adopt measures to address rising inflationary pressures.

On the other side, the EUR/USD pair might encounter challenges stemming from market caution as traders await the release of inflation data from the United States (US), scheduled for later in the North American session. This data release can have a substantial impact on currency markets, potentially influencing the direction of the pair.

The US Consumer Price Index (CPI) is anticipated to show a 0.5% month-on-month increase, which represents an improvement from the previous month's reading of 0.2%. Additionally, the Core CPI figure, which excludes the more volatile food and energy prices, is expected to remain stable at 0.2%.

These inflation figures provide critical insights into the state of price movements in the US economy and can have a substantial impact on market sentiment and the US Federal Reserve’s (Fed) policy decision. Investors have indeed been considering the likelihood of a 25 basis point (bps) interest rate hike by the US Federal Reserve (Fed) in either the November or December meetings.

Additionally, there's an expectation that the Fed will maintain higher interest rates over an extended period. Inflation aberration could further strengthen the hawkish sentiment, potentially leading to a stronger US Dollar (USD) compared to the Euro (EUR) as the Fed may take measures to combat rising prices.

US Dollar Index (DXY), which assesses the performance of the US Dollar (USD) against a basket of the other major six currencies, struggling to snap the three-day losing streak. Spot price trades higher around 104.60 at the time of writing. Moreover, the Greenback is anticipated to remain resilient, supported by the further increase of economic activities in the US.

On Thursday, US Retail Sales growth data are projected to exhibit a slight slowdown. The expectations for August show a 0.2% increase compared to the previous month's growth of 0.7%. These figures may offer insights into consumer spending patterns and can influence market sentiment.