EUR/USD uncertainty amid expectations of Fed rate decision | 16 September 2024

EURUSD:

The EUR/USD currency pair commenced the week on a positive note, rising to the 1.1090 level during the Asian trading session on Monday. Investors are now awaiting the US Federal Reserve's (the Fed) decision, which is expected later this week. There is still no consensus among market participants as to whether the Federal Reserve will cut interest rates by 25 or 50 basis points.

The CME FedWatch Tool indicates that there is a 48.0% probability of the Federal Reserve cutting rates by 25 basis points at the September meeting. The probability of a 50 basis point rate cut has increased to 52.0%, up from 50.0% a day earlier.

Investors will be monitoring the FOMC press conference closely in order to gain insight into the future trajectory of US interest rates. Should Fed Chairman Jerome Powell announce a more aggressive easing approach, this could exert downward pressure on the US dollar, thereby providing potential momentum for EUR/USD.

European Central Bank (ECB) Governing Council member and Central Bank of Ireland Governor Gabriel Makhlouf stated on Friday that the central bank is still operating in a 'highly uncertain environment' and will rely on data to inform future monetary policy decisions. Mr Makhlouf was keen to stress that the ECB is not committing to a specific rate choice, but remains 'determined to ensure' that eurozone inflation returns to the 2% target 'in a timely manner'.

The latest research from Rabobank highlights that the ECB announced a second rate cut in this cycle last week, with another cut expected before the end of the year. The latest ECB staff forecasts also reflect a downward revision to eurozone growth. While expectations of Fed policy easing may weaken the US dollar, Rabobank believes that unfavourable eurozone fundamentals are likely to limit EUR/USD's upside potential in the near term.

Trade recommendation: We follow the level of 1.1100, when fixing above it we take Buy positions, when rebounding we take Sell positions.

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