EUR/USD moves above 1.1150 due to rising odds for the Fed’s aggressive rate-cutting cycle

• EUR/USD gains ground as the Fed is expected to continue its policy easing in November.
• CME FedWatch Tool suggests 42.9% odds of a 25 basis point rate cut and 57.1% odds of a 50 basis point cut in November.
• Lower inflation in France and Spain has increased the likelihood of the ECB’s rate cut in October.

EUR/USD kicks off the week by edging higher, trading around 1.1170 during the Asian session on Monday. This upside is attributed to the tepid US Dollar (USD), which could be attributed to rising expectations that the US Federal Reserve (Fed) may continue its policy easing in November.

On Friday, the US Core Personal Consumption Expenditures (PCE) Price Index for August increased by 0.1% month-over-month, falling short of market expectations of a 0.2% rise and lower than the previous 0.2% increase. This result aligns with the Federal Reserve's outlook that inflation is easing in the US economy, reinforcing the possibility of an aggressive rate-cutting cycle by the central bank. Meanwhile, the Core PCE on a year-over-year basis rose by 2.7%, matching expectations and slightly above the prior reading of 2.6%.

The CME FedWatch Tool indicates that markets are assigning a 42.9% probability to a 25 basis point rate cut by the Federal Reserve in November, while the likelihood of a 50-basis-point increased to 57.1%, up from 50.4% a week ago.

St. Louis Federal Reserve President Alberto Musalem stated on Friday, according to the Financial Times, that the Fed should begin cutting interest rates "gradually" following a larger-than-usual half-point reduction at the September meeting. Musalem acknowledged the possibility of the economy weakening more than anticipated, saying, "If that were the case, then a faster pace of rate reductions might be appropriate."

Lower-than-expected inflation in France and Spain has increased speculation that the European Central Bank (ECB) may implement another interest rate cut in October. If it occurs, this would mark the third cut in the ECB's ongoing policy-easing cycle, which began in June. The ECB resumed cutting rates in September after holding them steady in July.

Furthermore, traders would likely observe a slew of economic releases from Germany scheduled for Monday, including preliminary Consumer Price Index (CPI) data for September.