EUR/USD strengthens to near YTD top below 1.1050 on firm Fed rate cut prospects

• EUR/USD edge higher to YTD highs near 1.1040 in Monday’s early European session. 
• Fed’s Dovish remarks and higher bets on Fed rate cut in September continue to undermine USD and lift EUR/USD. 
• The Euro gains ground as the markets expect the ECB to reduce interest rates gradually.

The EUR/USD pair rises to the year-to-date (YTD) highs near 1.1040 during the early European section on Monday. The softer US Dollar (USD) across the board amid the growing speculation that the Federal Reserve (Fed) will cut the interest rate in September provides some support to the major pair. Traders will closely monitor Fed Chair Jerome Powell's speech on Friday for more cues about potential interest rate cuts. 

San Francisco Fed President Mary Daly said on Sunday that recent US economic data have given her “more confidence” that inflation is under control, adding that it’s time to consider adjusting borrowing costs from their current range of 5.25% to 5.5%. Meanwhile, Chicago Fed President Austan Goolsbee emphasized on Sunday that the US central bank officials should be wary of keeping the restrictive policy in place longer than necessary. The dovish comments from Fed policymakers further exert some selling pressure on the Greenback and create a tailwind for EUR/USD.

Investors are now pricing in about 70% odds of a quarter-point Fed rate cut in September, while a minority of investors expect a half-point move. Morningstar chief US economist, Preston Caldwell, noted that the CPI report "provides further support for aggressive Fed rate cuts beginning in September.” Caldwell sees a 25bps cut to start, which will take Fed Funds to 5.00-5.25%. 

Across the pond, the Euro (EUR) remains strong as the markets anticipate the European Central Bank (ECB) will reduce interest rates gradually. ECB President Christine Lagarde underscored at the latest press conference that policymakers are "not pre-committing to a particular rate path. The consensus was to adhere to a data-dependent and meeting-by-meeting approach.