The EUR/USD pair is climbing back towards the key resistance level of 1.1000 as the US Dollar weakens on expectations of a Federal Reserve interest rate cut. Investors are increasingly confident that the Fed will lower rates by 25 basis points at its September meeting.
The US Dollar Index, which measures the Greenback against major currencies, is sliding towards 102.70. Speculation of a September rate cut is driving demand for riskier currencies, with US Treasury yields dropping to around 3.89%.
Despite optimism for Fed rate cuts, traders are scaling back bets on a 50-basis point reduction as recent data, including strong Retail Sales and lower Jobless Claims, ease recession fears. The focus now shifts to Fed Chair Jerome Powell’s speech at the upcoming Jackson Hole symposium for clues on future rate cuts.
On the other hand, the Euro remains attractive as the European Central Bank (ECB) hints at gradual rate cuts. ECB policymakers are cautious about committing to a specific rate path due to concerns about potential inflation pressures.
Analysis and Impact:
The rebound in the EUR/USD pair reflects shifting market expectations regarding central bank policies. The prospect of Fed rate cuts has weakened the US Dollar, while the Euro remains steady with the ECB’s cautious approach. Investors should monitor upcoming events, such as Powell’s speech and ECB decisions, to gauge future currency movements and potential investment opportunities.