EUR/USD strengthens amid expectations that the Fed will cut rates in September | 02 September 2024

EURUSD:

The EUR/USD exchange rate ended a three-day losing streak on Monday, trading near 1.1050 during the Asian session. The increase in EUR/USD can be attributed to a decline in the value of the US dollar (USD) in response to the dovish stance adopted by the US Federal Reserve (Fed). However, the July US Personal Consumption Expenditure (PCE) index may provide support for the USD, limiting the potential for the pair to rise further.

On Friday, the US Bureau of Economic Analysis reported that the core personal consumption expenditure (PCE) price index rose 2.5% year-on-year in July, matching the previous reading of 2.5% but falling short of the forecast of 2.6%. Meanwhile, the core PCE index, which excludes volatile food and energy prices, saw a 2.6% year-on-year increase in July, matching the previous reading of 2.6%. This figure was slightly below the consensus forecast of 2.7%.

The CME FedWatch Tool indicates that the market anticipates a 25-basis-point reduction in the Federal Reserve interest rate at the upcoming September meeting. Atlanta Fed President Rafael Bostic, one of the most prominent hawks on the FOMC, stated last week that it may be an opportune time to consider a rate cut due to further cooling inflation and higher-than-expected unemployment. The FXStreet FedTracker indicator, which rates the tone of Fed officials' speeches on a dovish to hawkish scale of 0 to 10 using a special artificial intelligence model, rated Kashkari's words as neutral with a score of 5.6.

European Central Bank (ECB) Governing Council member François Villeroy de Galhau stated on Friday, according to Bloomberg, that there are 'good reasons' for the central bank to consider cutting its key interest rate in September. Mr. de Galhau suggested action at the upcoming meeting on 12 September, noting that a decision on a new rate cut would be fair and prudent.

Trade recommendation: Trading predominantly Buy orders from the current price level.

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