- EUR/USD edges higher as the US Dollar drops as traders shift their focus to Fed Powell’s speech at the Jackson Hole Symposium.
- Investors look for fresh interest-rate guidance for September and the remainder of the year.
- The ECB is widely anticipated to cut interest rates again in September.
EUR/USD recovers mildly to near 1.1120 in Friday’s New York session after correcting from a fresh year-to-date high of 1.1174 on Thursday. The major currency pair edges higher as the US Dollar (USD) resumes its recent weakness after a decent recovery move a day earlier, amid caution ahead of Federal Reserve (Fed) Chair Jerome Powell’s speech at the Jackson Hole (JH) Symposium.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, drops to near 101.30 after recovering from a more-than-seven-month low of 101.00 to nearly 101.60 on Thursday. The US Dollar bounced back strongly after the flash US S&P Global PMI report for August showed that the Composite PMI came in better than estimated at 54.1. Overall, the report showed that business activity was boosted by a robust expansion in the services sector, while the manufacturing part of the economy contracted at a faster-than-expected pace.
In his speech at the JH Symposium – scheduled at 14:00 GMT – Jerome Powell is expected to provide cues on interest rates and the United States (US) economic outlook. Market participants are keen to know the size of interest rate cuts in the September meeting, given that a “vast majority” of officials said that "if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting,” according to Federal Open Market Committee (FOMC) minutes of July 30-31 policy meeting.
Investors also consider the chances of the US economy to achieve a “soft landing”, knowing that price pressures are on track to return to the desired rate of 2%. Fears of a potential US recession escalated after the Nonfarm Payrolls (NFP) report for July indicated a sharp slowdown in the labor demand and an increase in the Unemployment Rate to 4.3%, the highest level seen since November 2021.
Analysts don’t expect Jerome Powell to provide a preset interest rate path. However, he may call rate cuts in September as appropriate, given that risks have now expanded to both aspects of dual mandate (inflation and employment).
Daily digest market movers: EUR/USD edges higher despite optimism over ECB rate cuts
- EUR/USD edges higher from the round-level support of 1.1100 as investors underpin the Euro (EUR) against the US Dollar. However, the Euro is underperforming against other major peers as markets increasingly expect the European Central Bank (ECB) to reduce interest rates again in September.
- Rising expectations of ECB rate cuts in September are supported by the uncertainty over the Eurozone’s economic outlook and cooling wage pressures.
- The flash Eurozone HCOB PMI report for August, released on Thursday, rose to 51.2, higher than expected, indicating that overall business activity expanded at a faster pace. However, this rosy picture signaled by the PMI surveys was linked to strong demand from the Olympic Games in Paris and it is likely to be short-lived rather than structural. Therefore, the uncertainty over the economic performance in the coming months remains intact.
- PMI data also signaled that business activity in the Eurozone’s largest economy, Germany, declined sharply mainly due to a significant drop in foreign demand, with no recovery in sight, signaling the need for fresh stimulus to boost demand.
- Meanwhile, a sharp decline in the Q2 Negotiated Wage Rates propelled hopes of more ECB rate cuts this year. The data, which was released in Thursday’s European trading hours, showed that Negotiated Wage Rates grew at a slower pace of 3.55% from 4.74% in the first quarter this year, easing fears of inflation remaining persistent.
- Economists at ING said in a note on Thursday, "The European Central Bank has remained uncomfortable with cutting interest rates while wage growth is elevated.” Lower wage growth in Q2 should help ease policymakers’ concerns in this matter.
Euro PRICE Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Swiss Franc.
| EUR | USD | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| EUR | 0.09% | -0.08% | -0.36% | -0.08% | -0.17% | -0.13% | 0.19% | |
| USD | -0.09% | -0.17% | -0.44% | -0.16% | -0.25% | -0.45% | 0.11% | |
| GBP | 0.08% | 0.17% | -0.27% | 0.02% | -0.09% | -0.03% | 0.03% | |
| JPY | 0.36% | 0.44% | 0.27% | 0.25% | 0.17% | 0.20% | 0.31% | |
| CAD | 0.08% | 0.16% | -0.02% | -0.25% | -0.09% | -0.04% | 0.04% | |
| AUD | 0.17% | 0.25% | 0.09% | -0.17% | 0.09% | 0.05% | 0.11% | |
| NZD | 0.13% | 0.45% | 0.03% | -0.20% | 0.04% | -0.05% | 0.06% | |
| CHF | -0.19% | -0.11% | -0.03% | -0.31% | -0.04% | -0.11% | -0.06% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
Technical Analysis: EUR/USD rises toward 1.1200
EUR/USD holds above the round-level support of 1.1100, with investors focusing on Fed Powell’s speech at the JH Symposium. The outlook of the shared currency pair has remained upbeat after a breakout of a channel formation on a daily time frame. All short-to-long-term Exponential Moving Averages (EMAs) are sloping higher, suggesting a strong uptrend.
The 14-day Relative Strength Index (RSI) oscillates in the bullish range of 60.00-80.00, touching overbought levels but still suggesting a strong upside momentum.
In case of a decisive break above the December 28, 2023, high at 1.1140, Euro bulls could aim to recapture round-level resistance of 1.1200. On the downside, the round-level figure of 1.1100 acts as a major support zone.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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