• EUR/USD recovers intraday losses as softer US inflation data weighs on the US Dollar.
• Back-to-back CPI and PPI misses reduce expectations of an immediate Fed rate hike.
• Middle East-driven energy risks keep inflation concerns alive.

EUR/USD recovers its intraday losses on Wednesday as the US Dollar (USD) comes under pressure after the latest US inflation data surprised to the downside. At the time of writing, the pair trades around 1.1430 after hitting an intraday low of 1.1406.

The US Producer Price Index (PPI) fell 0.3% MoM in June after rising 0.6% in May, below the forecast of 0%. On an annual basis, producer inflation slowed to 5.5% from 6.0%, also undershooting expectations of 6.2%.

Core PPI, which excludes food and energy, rose 0.2% MoM, below the expected 0.4% increase but slightly above May’s 0.1% gain. The annual core rate edged up to 4.7% from 4.6%, although it came in below the 5.2% forecast.

The figures follow softer US Consumer Price Index (CPI) data released on Tuesday. The back-to-back inflation misses have reduced expectations of an immediate Federal Reserve (Fed) interest rate hike, pulling the US Dollar lower and offering some support to the Euro (EUR).

The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, is trading below 101 after giving up its earlier gains.

According to the CME FedWatch Tool, markets now see an 88% chance that the Fed will leave interest rates unchanged at its July meeting, while the probability of a September hike has fallen to around 52%.

However, the slowdown in inflation could prove temporary, as energy-driven price risks persist following renewed fighting between the United States (US) and Iran. Disruptions to supplies through the Strait of Hormuz have lifted Oil prices, keeping the possibility of a Fed rate hike later this year on the table.

New York Fed President John Williams said on Wednesday that inflation is still too high and must return to the Fed’s target on a sustained basis. Williams expects inflation to ease to around 3.25% by the end of this year, move closer to 2% in 2027 and reach the target in 2028.

On the Euro side, European Central Bank (ECB) officials continue to signal a cautious approach after raising the Deposit Facility Rate by 25 basis points to 2.25% in June. Bundesbank President Joachim Nagel said on Wednesday that rates are at an appropriate level following last month’s decision, but added that policymakers should act decisively if necessary.