EURUSD is moving in Ascending channel and market has fallen from the higher high area of the channel
EUR/USD Gains as Soft US Inflation Reading Boosts Fed Rate-Cut Prospects
The EUR/USD currency pair has been making waves in the forex market recently. With a soft inflation reading in the US, the likelihood of the Federal Reserve cutting interest rates has increased. Let’s dive into the details of how this situation unfolded and what it means for the EUR/USD pair.
Fed Rate Cut: Is It a Done Deal?
The possibility of a rate cut by the Federal Reserve in September is looking more and more likely. The recent data on the US Consumer Price Index (CPI) has played a significant role in this development. June’s CPI data indicated that the disinflation process has resumed, after a brief pause earlier in the year. Core inflation, which excludes volatile food and energy prices, unexpectedly dropped to 3.3%, below economists’ expectations of 3.4%. Headline inflation also fell to 3.0%, the lowest in a year, thanks to easing energy prices and rentals.
Why the Fed Might Cut Rates
The easing of inflationary pressures and a cooling labor market have given the Federal Reserve confidence that inflation is on track to return to its 2% target. San Francisco Fed President Mary Daly highlighted that the slowdown in inflation is a “welcome relief,” strengthening the case for lower interest rates. However, the exact timing of these rate cuts is still up for debate.
A rate cut is generally bad news for the US Dollar. As the Fed prepares to potentially lower rates, the US Dollar Index (DXY), which measures the dollar against a basket of six major currencies, has been showing signs of vulnerability. This situation has given the EUR/USD pair a boost, driving it close to a new monthly high.
Political Stability in France Eases Eurozone Concerns
Another factor contributing to the rise of the EUR/USD pair is the political situation in France. The immediate risks of a financial crisis in France, the Eurozone’s second-largest economy, have diminished. Marine Le Pen’s far-right National Rally failed to maintain its dominance, alleviating fears of increased fiscal spending and a potential financial crisis.
French Political Landscape
While the far-right’s defeat has reduced immediate financial risks, uncertainty remains due to the expected coalition of French President Emmanuel Macron’s centrist alliance and the left-wing New Popular Front led by Jean-Luc Mélenchon. This new fiscal policy framework could bring changes, but for now, the market seems relieved by the decreased risk of a financial crisis in France.
ECB’s Rate Cut Expectations Subside
The European Central Bank (ECB) has also played a role in the EUR/USD’s recent movements. Expectations of subsequent rate cuts by the ECB have diminished. ECB officials believe that price pressures will remain stable throughout the year, making aggressive policy expansion unnecessary.
EURUSD is moving in Symmetrical Triangle and market has reached lower high area of the pattern
ECB’s Current Stance
ECB policymakers are cautious about committing to a pre-defined path for rate cuts. They are concerned that too much easing could reignite price pressures. This cautious approach has provided some support to the Euro, contributing to the EUR/USD’s rise.
Market Movers: Daily Digest
In recent trading sessions, the EUR/USD pair has moved higher, nearing the 1.0900 mark. The pair’s near-term outlook has strengthened as investors anticipate a rate cut by the Fed in September. The CME FedWatch tool suggests that a rate cut is almost certain, with another cut expected in November or December.
Impact of US Producer Price Index (PPI) Data
Investors are also keeping an eye on the upcoming US Producer Price Index (PPI) data for June. The PPI measures the average change in selling prices received by domestic producers for their output. Higher-than-expected producer inflation could influence the Fed’s decisions on interest rates, further impacting the US Dollar and the EUR/USD pair.
Final Thoughts
The EUR/USD currency pair has been buoyed by a combination of factors, including soft US inflation data, political stability in France, and a cautious approach by the ECB. The likelihood of a Federal Reserve rate cut in September seems high, which could continue to weigh on the US Dollar and support the Euro.
As always in the forex market, it’s important to stay informed about the latest developments and be prepared for potential volatility. Whether you’re a seasoned trader or just starting, understanding the factors driving currency movements can help you make more informed decisions.
Keep an eye on the upcoming US PPI data and any further announcements from the Federal Reserve and the ECB. These events could provide additional clues about the future direction of the EUR/USD pair.
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