EUR/USD gathers strength to near 1.1200 as risk appetite rebounds

• EUR/USD trades in positive territory for the second consecutive day around 1.1195 in Wednesday’s Asian session. 
• A larger Fed rate cut expectation drags the USD down against the Euro. 
• ECB policymaker signaled another interest-rate cut next month cannot be ruled out. 

The EUR/USD pair extends upside to near 1.1195 on Wednesday during the Asian trading hours. The weakening of the Greenback amid rising speculation of a jumbo rate cut from the US Federal Reserve (Fed) in November provides some support to the major pair. France’s Consumer Confidence and US New Home Sales data are due on Wednesday. Also, Fed Governor Adriana Kugler is set to speak. 

The bigger-than-expected cut in interest rates by the Fed drags the US Dollar (USD) lower broadly. The US central bank cut its benchmark Federal Funds Rate by half a percentage point to the 4.75% to 5% range “in light of the progress on inflation and the balance of risks.” Investors raise their bets that the Fed will cut further rate in November. According to the CME FedWatch Tool, the markets have priced in nearly 56% possibility of a second 50 bps rate cut in the November meeting, while the odds of 25 bps stands at 44%. 

The improved risk appetite is likely to support the shared currency for the time being. However, the expectation of another interest-rate cut by the European Central Bank (ECB) or any signs of weakness in the Eurozone economy could cap the upside for the Euro (EUR) against the USD. The ECB governing council member Klaas Knot said on Tuesday that the central bank would continue to reduce the interest rates at least through the first half of 2025, to a level between 2% and 3%. Meanwhile, ECB policymaker Madis Muller noted another interest-rate cut next month cannot be ruled out, but reckons policymakers may lack sufficient data to make definitive judgments on the region’s struggling economy.