EURUSD under pressure as the Euro declines amid strong ECB rate cutting forecasts.
EURUSD falls from new highs of 1.1200 in Wednesday’s European session, as the Euro (EUR) declines. The Euro underperforms its major counterparts. As investors believe the European Central Bank (ECB) will slash interest rates again in September.
The Eurozone’s dismal economic outlook strengthens bets on ECB rate cuts in September.
The ECB began lowering interest rates in June, as policymakers remain optimistic. That price pressures in the Eurozone will return to the bank’s target of 2% by 2025. Nonetheless, it chose to abandon its Key borrowing rates remained steady in July. As officials were concerned that aggressive policy easing could reignite inflationary pressures.
With indications from the Eurozone flash HCOB PMI for August and Q2 Negotiated. Wage Rates indicating that the overall economic outlook is uncertain. And wage pressures are moderating, the ECB is widely expected to cut interest rates by 25 basis points in September. Traders also expect the ECB to drop borrowing rates again in the fourth quarter of this year.
Investors will look for new indications on the direction of interest rate cuts in the August flash Harmonized Index of Consumer Prices (HICP) data for Germany and the Eurozone, which will be released on Thursday and Friday, respectively. Economists expect pricing pressures to have eased.
Daily Market Movers: EURUSD falls to around 1.1150 during European trading hours, weighed down by ECB rate cuts.
The major currency pair falls as the US Dollar (USD) recovers after reaching a new year-to-date (YTD) low this week. The US Dollar Index (DXY). Which measures the value of the US dollar against six major currencies, edged higher to approximately 100.80 from new lows of 100.50.
Furthermore For the time being, a slight recovery in the US Dollar appears to be a temporary dip. Which market participants may profit on as a selling opportunity. The Greenback’s near-term future dependent on simple hope that the Federal Reserve (Fed) will begin lowering interest rates in September.
While Fed rate reduction were completely implemented in September. Traders are split on whether the central bank will gradually lower interest rates by 25 basis points (bps) or offer a greater decrease of 50 bps.
Federal Funds Futures pricing data reveals that the likelihood of a 50-bps interest rate decrease in September.
According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data reveals that the likelihood of a 50-bps interest rate decrease in September 34.5%, with the balance favoring a 25-bps reduction.
Moreover Investors will be looking for further clues regarding the extent of the likely rate decrease when the United States (US) core Personal Consumption Expenditure Inflation (PCE) data for July is released on Friday. The PCE Price Index report is projected to reveal that annual core inflation increased by 2.7%, up from 2.6% in June, with monthly readings rising consistently by 0.2%. Signs A further decrease in underlying inflation would lead to anticipation that the Fed would pursue aggressive policy easing. On the contrary, sticky statistics would damper this massive rate decrease possibility.
