The euro is in negative territory on Monday. In the European session, EUR/USD is trading at 1.1156 at the time of writing, down 0.32% on the day. The euro posted strong gains on Friday, rising 0.73% and breaking above 1.12 for the first time since July 17.
Dollar Slides After Powell Says Fed Ready to Cut
The markets got what they were looking for from Federal Reserve Chair Powell on Friday – an endorsement for a rate cut. Powell didn’t specify when the Fed would cut but said that the “time has come for policy to adjust”. Investors are ready for the Fed’s first rate cut in over four years at the Sept. 18 meeting. What is still up in the air is the size of the cut.
Just one month ago, the odds of a 25-basis point cut stood at 88% and 12% for a cut of 50 bps, according to the CME’s FedWatch. Since then, the US economy has posted some weaker-than-expected data and the probability of a 25-bps reduction has fallen to 63.5% for a 25-bps cut vs. 36.5% for a 50 bps move.
One key factor in the Fed’s decision will be the August jobs report on Sept. 6. A very weak report for July panicked investors that the US economy was hurtling towards a recession and financial markets were routed before bouncing back. Another weak jobs report could rattle investors and push the Fed to respond with a 50-bps cut. The expected September cut will mark the start of a new rate cycle for the Fed, which has maintained rates at 5.25%-5.50% for over a year. The Fed is expected to lower rates at least one more time this year and continue trimming into 2025.
Germany’s Ifo Institute business climate sentiment index declined in August for a fourth consecutive time as the German economy continues to struggle. The index eased to 86.6, down from 87.0 but above the market estimate of 86.0. The survey’s manufacturing component dropped sharply and the services component also fell.
EUR/USD Technical
- EUR/USD is testing support at 1.1165. Below, there is support at 1.1130
- 1.1229 and 1.1264 are the next resistance lines