As the Asian session progresses on Wednesday, the EUR/USD pair is seen hovering near 1.1120, showing signs of a slight decline. The cautious sentiment in the market is boosting the US Dollar, but the possibility of more dovish remarks from the Federal Reserve could limit its upward potential. Investors are eagerly anticipating the release of the FOMC Minutes later today, as it could provide fresh catalysts for the currency pair.
In its July meeting, the FOMC decided to keep the Federal Funds rate steady at 5.25%-5.50%. However, Fed Chair Jerome Powell hinted at the possibility of a rate cut if inflation continues to ease. This dovish tone from the Fed has been weighing on the Greenback in recent sessions. Nevertheless, the apprehensive mood ahead of the key event is bolstering the safe-haven appeal of the US Dollar, creating headwinds for EUR/USD.
Looking ahead, traders will be closely monitoring Powell’s speech at the Jackson Hole Symposium on Friday for further insights into the Fed’s future plans. Market expectations currently suggest a 67.5% likelihood of a 25 bps interest rate cut in September, according to the CME FedWatch Tool.
On the European front, ECB policymaker Olli Rehn highlighted the potential need for further interest rate cuts in September due to ongoing economic weakness in the euro area. Traders are pricing in a 90% chance of a 25 bps cut in the deposit rate to 3.5% next month, with expectations of more easing measures before the year-end.
Analysis and Breakdown:
The EUR/USD pair is facing downward pressure as investors await the FOMC Minutes and anticipate dovish remarks from the Federal Reserve. The cautious sentiment in the market is boosting the US Dollar, while ongoing economic weakness in the euro area is supporting expectations of ECB rate cuts. Traders will be closely watching Powell’s speech for further guidance on future monetary policy decisions. Overall, the currency pair is likely to experience increased volatility in the coming days, with potential implications for global financial markets and individual investors.