The EUR/USD pair is trading lower around 1.0835 in the Asian session, extending losses for the third day in a row. The negative sentiment is driven by concerns about the Eurozone’s economic outlook and expectations of further rate cuts by the European Central Bank (ECB) in September.
ECB Vice President Luis de Guindos recently suggested a possible rate cut in September, with ECB President Christine Lagarde also hinting at potential cuts amid easing inflationary pressures. This anticipation of more rate cuts is likely to weigh on the Euro in the short term.
On the other side of the Atlantic, market participants are expecting the US Federal Reserve to begin cutting interest rates in September. Traders have priced in a 100% chance of a 25 basis points rate cut, with estimates of 53 bps of easing by 2024.
In terms of economic data, the US private sector showed mixed results in July. The S&P Global Manufacturing PMI declined to 49.5, while the Services PMI improved to 56.0. The overall Composite PMI increased to 55.0, indicating continued expansion in business activity.
Looking ahead, investors will be watching ECB President Lagarde’s speech and the US GDP data for the second quarter. The US economy is expected to grow by 2.0%, up from the previous reading of 1.4%.
Analysis:
In summary, the weakening of EUR/USD and the anticipation of rate cuts by both the ECB and the Fed are likely to impact global markets and investors. Lower interest rates can stimulate economic growth but may also lead to currency depreciation. This could affect your investment portfolio, especially if you have exposure to international markets or currency pairs. Keep a close eye on central bank policies and economic indicators to make informed decisions about your finances.