- Analytics
- News and Tools
- Market News
- EUR/USD surges above 1.1150 as traders digest Fed’s bumper interest-rate cut
EUR/USD surges above 1.1150 as traders digest Fed’s bumper interest-rate cut
- EUR/USD rises sharply above 1.1150 as investors expect the Fed to continue its aggressive policy-easing cycle.
- The Fed sees interest rates declining to 4.4% by year-end.
- ECB Nagel said that inflation is still higher than the ECB would like to see.
EUR/USD climbs above 1.1150 in Thursday’s European session, driven by a weakening US Dollar (USD), as the dust settles after the Federal Reserve’s (Fed) bumper interest rate cut and expectations of further policy-easing. The USD, tracked by the DXY USD Index, falls back below 100.70 after failing to hold onto a weekly high near 101.50.
The Fed delivered its first interest rate cut move in more than four years, cutting its key borrowing rates by 50 basis points (bps) to 4.75%-5.00%. This large cut by the Fed indicated that policymakers are committed to preventing a further deterioration in labor market conditions and are confident about progress in inflation falling towards the bank’s target of 2%.
Fed Chair Jerome Powell said at the press conference following the policy decision that the United States (US) is not exposed to a recession or even a slowdown. However, market participants expect that the Fed’s policy-easing cycle will be quite aggressive compared to that of other central banks.
According to the CME FedWatch tool, the central bank is expected to cut interest rates by 75 bps in the two meetings remaining this year, suggesting that there will be one more 50 bps rate cut either in November or December. 30-day Federal Funds Futures pricing data shows that the likelihood for the Fed reducing interest rates by 50 bps to 4.25%-4.50% in November is at 35% while the rest favors a 25-bps rate cut.
On the contrary, the Fed’s dot plot showed that policymakers see the federal funds rate heading to 4.4% by the year-end.
Going forward, investors will focus on Initial Jobless Claims data for the week ending September 13, which will be published at 12:30 GMT. The number of individuals claiming jobless benefits for the first time is expected to steady at 230K.
Daily digest market movers: EUR/USD gains on US Dollar’s weakness
- EUR/USD gains at the US Dollar’s expense, while the outlook of the Euro (EUR) is uncertain due to a growing debate about the European Central Bank’s likely interest rate path. ECB policymakers are divided over the policy-easing pace due to mixed views on the inflation outlook.
- ECB Governing Council member Peter Kazimir and President of Deutsche Bundesbank Joachim Nagel said they want to see more evidence to make sure that inflation will return to the levels the bank wants to see. Nagel said on Wednesday that he supports keeping interest rates sufficiently high to resolve price pressures, Reuters reported.
- On the contrary, ECB Governing Council member and Bank of France President François Villeroy de Galhau said last week that more rate cuts are needed to avoid the risk of inflation coming in too low. The comments from Villeroy came after the ECB delivered its second interest rate cut decision of its current policy-easing cycle.
- Currently, market participants expect that the ECB will cut interest rates one more time in any of its remaining monetary policy meetings this year.
Technical Analysis: EUR/USD bounces back from 20-day EMA
EUR/USD rises above 1.1150 in European trading hours in an intraday turnaround move after declining to near the 20-day Exponential Moving Average (EMA), which trades around 1.1060.
The major currency pair remains firm as it has confidently recovered after retesting the breakout of the Rising Channel chart pattern formed on a daily time frame near the psychological support of 1.1000.
The 14-day Relative Strength Index (RSI) moves higher to near 60.00. A bullish momentum would trigger if it sustains above the aforementioned level.
Looking up, the round-level resistance of 1.1200 will act as a major barricade for the Euro bulls. On the downside, the psychological level of 1.1000 and the July 17 high near 1.0950 will be major support zones.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
© 2000-2024. All rights reserved.
This site is managed by Teletrade D.J. LLC 2351 LLC 2022 (Euro House, Richmond Hill Road, Kingstown, VC0100, St. Vincent and the Grenadines).
The information on this website is for informational purposes only and does not constitute any investment advice.
The company does not serve or provide services to customers who are residents of the US, Canada, Iran, The Democratic People's Republic of Korea, Yemen and FATF blacklisted countries.
Making transactions on financial markets with marginal financial instruments opens up wide possibilities and allows investors who are willing to take risks to earn high profits, carrying a potentially high risk of losses at the same time. Therefore you should responsibly approach the issue of choosing the appropriate investment strategy, taking the available resources into account, before starting trading.
Use of the information: full or partial use of materials from this website must always be referenced to TeleTrade as the source of information. Use of the materials on the Internet must be accompanied by a hyperlink to teletrade.org. Automatic import of materials and information from this website is prohibited.
Please contact our PR department if you have any questions or need assistance at pr@teletrade.global.
Bank transfers
