EUR/USD Slips Below 1.1048 as ECB Prepares to Lower Rates
In a surprising turn of events, EUR/USD managed to appreciate by 0.2% to 1.1072 despite the recent victory of Germany’s far-right Alternative for Germany (AfD) in Thuringia. However, the currency pair has now fallen back below 1.1048 to 1.1035, as noted by DBS Senior FX Strategist Philip Wee.
The Euro had experienced a decline in the previous week, dropping from 1.1184 to 1.1048 in anticipation of a second interest rate cut at the European Central Bank meeting scheduled for September 12. With Eurozone CPI inflation falling to 2.2% YoY in August from 2.6% in July, the OIS market has priced in a 94% chance of a 25 bps cut in the deposit facility rate to 3.50%.
ECB Chief Economist Philip Lane’s recent cautionary remarks about the challenges of reaching the 2% inflation target have further fueled expectations of a rate cut. The market is currently pricing in a neutral rate of 2.00-2.50% by mid-2025, highlighting concerns about the Eurozone’s economic outlook.
Analysis:
The recent developments in the Eurozone, particularly the anticipated rate cut by the ECB, are likely to impact the EUR/USD exchange rate. Investors and traders should closely monitor the central bank’s policy decisions and economic data releases to make informed decisions about their investments. The potential rate cut could lead to increased market volatility and fluctuations in currency prices, making it crucial for individuals to stay updated on the latest developments in the financial markets.