Weakening of the US dollar favours the pair's growth | 25 September 2024

EURUSD:

EUR/USD shrugged off bearish sentiment on Tuesday and returned to recent highs with another failed attempt at 1.1200. The euro itself has little reason to rise, but a weakening US dollar in the broad market is helping to keep EUR/USD trading on a bullish trend.

There are few important data releases on either side of the Atlantic on Wednesday. Euro markets are completely absent from the economic agenda. Dollar traders will have to wait until the New York market session before Federal Reserve (Fed) Board of Governors member Adriana Kugler speaks at Harvard's Kennedy School in Cambridge.

Consumer confidence deteriorated across the board on Tuesday, with consumer expectations for 12-month inflation accelerating to 5.2%. Consumers also reported a general weakening in their six-month outlook for household financial conditions, and consumer assessments of overall business conditions turned negative.

As explained by Conference Board chief economist Dana Peterson, ‘Consumers’ assessments of current business conditions turned negative, and views on current labour market conditions softened further. Consumers were also more pessimistic about future labour market conditions and less positive about future business conditions and future income.’

Fed Board of Governors member Michelle Bowman made some noise last week when she became the lone dissenter to the Fed's nearly unanimous decision to cut interest rates by a prohibitive 50 bps. Fed Chair Bowman had favoured a smaller 25bp rate cut, citing lingering concerns that the Fed may act prematurely before confirming that inflation will continue to fall towards the 2% target range.

Despite Fed Chair Bowman concerns, the decline in consumer confidence readings has sparked renewed demand in the rates markets for a subsequent sharp rate cut in November. According to CME's FedWatch tool, rates markets are pricing in nearly 60% probability of a second 50 bps rate cut. 7 November and only a 40% probability of a more reasonable subsequent 25bp rate cut. Earlier in the week, traders were estimating roughly equal odds of a 50bp or 25bp rate cut.

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

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