EUR/USD dives sharply on Thursday as the latest inflation report in the United States (US) caught traders off guard, who were betting on a slim chance of a 50 basis points (bps) Federal Reserve (Fed) rate cut in September. Currently, the pair trades at 1.1638, down 0.57%.

The US Bureau of Labor Statistics (BLS) revealed that the Producer Price Index (PPI) in headline and core prints accelerated sharply, mainly influenced by higher tariff levels imposed by the US. Meanwhile, jobs data showed that the number of people filing for unemployment benefits dipped compared to the previous reading, as revealed by the Department of Labor (DoL).

Consequently, market participants had taken off the table the possibility of a jumbo rate cut. Instead, they're pricing in a slim chance that the Fed might hold rates unchanged at the September 16-17 meeting.

After the data, some Fed officials crossed the wires. St. Louis Fed President Alberto Musalem said that inflation is running close to 3%, adding that tariffs are feeding through inflation. The Richmond Fed President Thomas Barkin said that business sentiment had picked up, but not in terms of hiring.

In the Eurozone, Gross Domestic Product (GDP) figures came in as expected, though Industrial Production tanked in June, influenced by a dip in Germany and weak consumer goods production.

Despite the ongoing weakness shown in today's data, further EUR/USD upside is seen. The Fed is expected to cut rates in September, while most economists expect the European Central Bank (ECB) to keep rates unchanged. The reduction of the interest rate differential between the US and the bloc would strengthen the Euro.

On Friday, the European Union (EU) economic docket will be absent. In the US, the schedule will feature Retail Sales, Industrial Production, and the University of Michigan (UoM) Consumer Sentiment index.

Source: Fxstreet