EUR/USD stays below 1.0550 as traders exercise caution ahead of the US CPI

• EUR/USD receives downward pressure due to market caution ahead of the US inflation report.
• US headline and core inflation are estimated to rise to 2.7% and 3.3%, respectively, YoY in November.
• The Euro faces challenges as the ECB is widely expected to implement a 25 basis point rate cut on Thursday.

EUR/USD remains subdued for the fourth consecutive day, trading around 1.0530 during the Asian session on Wednesday. However, the pair faced challenges as the US Dollar (USD) gained support from market caution, which could be attributed to the upcoming US Consumer Price Index (CPI) data release due on Wednesday.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against its six major peers, appreciates as the US Treasury yields continue to rise amid market caution ahead of the Federal Reserve’s (Fed) policy decision. The DXY maintains its position around 106.40 with 2-year and 10-year yields on US Treasury coupons standing at 4.16% and 4.23%, respectively, at the time of writing.

The US CPI inflation is estimated to rise to 2.7% YoY in November from 2.6% in October. Meanwhile, the core CPI, excluding Food & Energy, is expected to increase 3.3% YoY. Any indications of stalled progress could significantly diminish the likelihood of a Federal Reserve’s (Fed) rate cut. However, markets are now pricing in nearly an 85.8% chance of Fed rate reductions by 25 basis points, according to the CME FedWatch Tool.

In the Eurozone, traders await the European Central Bank's (ECB) policy decision, scheduled for release on Thursday. The central bank is widely expected to implement a 25 basis point cut, lowering the Main Refinancing Operations Rate from 3.4% to 3.15% and the Deposit Facility Rate from 3.25% to 3.0%.