Forex Today: Focus shifts to Eurozone inflation and mid-tier US data releases

Here is what you need to know on Tuesday, September 1:

The action in financial markets remain relatively subdued on the first trading day of September as investors' attention shifts to preliminary August inflation readings from the Eurozone and mid-tier macroeconomic data releases from the United States (US).

The US Dollar (USD) Index closed in negative territory on Monday and erased a small portion of the previous week's gains. US Treasury Secretary Scott Bessent told CNBC on Monday that the core inflation has remained "very restrained" and argued that traditionally interest rates shouldn't be raised into a supply shock. Bessent, however, noted he is not going to speculate on what the Federal Reserve's (Fed) next policy step could be.

At the same time, US President Donald Trump said interest rates are too high, adding he has a lot of respect for Fed Chair Kevin Warsh and that he will know what he has to do. After falling about 0.3% on Monday, the USD Index clings to marginal gains at around 99.50 in the European morning on Tuesday. Later in the American session, JOLTS Job Openings data for July and the Institute for Supply Management's (ISM) Manufacturing Purchasing Managers' Index (PMI) report for August will be featured in the US economic calendar.

Fed credibility questioned as political pressure mounts in the US

Analysts at BNP Paribas highlight that political pressure on the Fed has intensified, with President Trump "relentlessly attacking the Federal Reserve and its leadership out of anger that they have not cut interest rates more." They note that financial markets have become increasingly uneasy, "unsure whether the Chairman he appointed will deliver the policy tightening that appears likely to be needed to restore price stability." BNP Paribas cautions that "once lost, credibility takes not only time but action to restore, demanding a higher economic cost to restore price stability than would be the case under a fully credible central bank," underscoring the potential macroeconomic consequences if confidence in the Fed’s policy framework continues to erode.

The data from Germany showed earlier in the day that Retail Sales declined by 3.4% on a monthly basis in July. This print missed the market expectation for an increase of 0.4% by a wide margin. In the Eurozone, the Harmonized Index of Consumer Prices are forecast to rise 3.3% on a yearly basis in August, following the 2.9% growth recorded in July. Ahead of this data, EUR/USD stays on the back foot and trades marginally lower on the day at atound 1.1600.

GBP/USD registered small gains on Monday but lost its traction early Tuesday. At the time of press, the pair was trading in the red, below 1.3550.

Japanese Finance Minister (FM) Satsuki Katayama said Tuesday that he confirmed with US Treasury Secretary Scott Bessent that continued, coordinated action on foreign exchange markets is needed. USD/JPY stabilizes following Monday's modest decline and trades near 160.00.

Gold struggles to keep its footing following Monday's choppy action and declines toward $4,400 in the European session on Tuesday.