EUR/USD strengthens amid expectations that the Fed will continue policy easing in November | 30 September 2024

EURUSD:

The EUR/USD currency pair commenced the week at a higher value, trading at approximately 1.1170 during the Asian trading session on Monday. The increase is attributed to a decline in the US dollar (USD), which may be due to rising expectations that the US Federal Reserve (Fed) will continue policy easing in November.

On Friday, the US Core Personal Consumption Expenditure (PCE) Price Index for August showed a 0.1% increase on a month-on-month basis, which fell short of market expectations of 0.2% and was below the previous 0.2% increase. This result aligns with the Federal Reserve's projection that inflation in the US economy is decelerating, enhancing the probability of a robust rate reduction by the central bank. Concurrently, the core PCE increased by 2.7% year-on-year, meeting expectations and slightly exceeding the previous reading of 2.6%.

The CME FedWatch tool indicates that the probability of a 25 basis point Fed rate cut in November is 42.9 per cent, while the probability of a 50 basis point rate cut has increased to 57.1 per cent from 50.4 per cent a week ago.

On Friday, St. Louis Fed President Alberto Musalem told the Financial Times that the Fed should begin reducing interest rates in a gradual manner following a larger-than-usual half-point rate cut at its September meeting. Mr. Musalem acknowledged the possibility of the economy weakening more than expected, stating, "In such an event, a faster pace of rate cuts might be appropriate."

The lower-than-anticipated inflation figures in France and Spain have heightened speculation that the European Central Bank (ECB) may implement another interest rate cut in October. Should this occur, it would mark the third rate cut in the ECB's policy easing cycle, which commenced in June. The ECB resumed its programme of rate cuts in September, following a period of stability in July.

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

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