EUR/USD edges lower around 1.0850 due to market caution ahead of US Nonfarm Payrolls

• EUR/USD depreciates as traders adopt caution ahead of US Nonfarm Payrolls scheduled for Friday.

• The US Dollar rebounds as market caution persists amid uncertainty ahead of the upcoming US presidential election.

• The unexpected rise in Eurozone inflation has reinforced expectations that the ECB will adopt a cautious approach to rate cuts.

EUR/USD halts its four-day winning streak, trading around 1.0870 during the Asian session on Friday. This downside is attributed to the improved US Dollar (USD) due to ongoing market caution amid uncertainty leading up to the upcoming US presidential election.

On Thursday, the US Dollar encountered difficulties as the US Personal Consumption Expenditures (PCE) Price Index indicated that core inflation rose by 2.7% year-over-year in September. The monthly core PCE Price Index rose 0.3%, in line with the consensus. However, Initial Jobless Claims fell to a five-month low of 216,000 for the week ending October 25, signaling a resilient labor market and reducing expectations for imminent rate cuts by the Federal Reserve (Fed).

Traders are awaiting the Nonfarm Payrolls (NFP) report set for release on Friday. The US economy is projected to have added 113,000 jobs in October, with the Unemployment Rate expected to remain unchanged at 4.1%.

The annual inflation rate in the Eurozone increased to 2.0% in October, up from the previous 1.7% reading and surpassing forecasts of 1.9%. The core inflation rate held steady at 2.7% year-over-year. This rise in inflation is supported by stronger-than-anticipated economic growth, with the Eurozone economy expanding by 0.4% quarter-on-quarter in Q3, twice the growth seen in Q2 and exceeding predictions of 0.2%.

This unexpected increase in inflation data has bolstered expectations that the European Central Bank (ECB) will maintain a cautious approach to rate cuts, steering clear of significant reductions.

The ECB has highlighted that inflationary pressures remain elevated, primarily due to wage growth. In its recent October meeting, the ECB reaffirmed its commitment to a "data-dependent and meeting-by-meeting" strategy for future policy decisions.