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02/09/24
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EUR/USD Rises as Dollar Weakens Amid Dovish Fed Outlook
The EUR/USD currency pair has rebounded from a three-day decline, trading at approximately 1.1050 during the Asian session on Monday. This recovery can largely be attributed to a weakening US Dollar, influenced by the prevailing dovish tone surrounding the Federal Reserve’s potential policy shifts. Investor sentiment is particularly shaped by expectations of a minimum 25-basis point rate cut in September.
Factors supporting the US Dollar were evident in the recent data from the Bureau of Economic Analysis. The July Personal Consumption Expenditures (PCE) Price Index rose by 2.5% on a year-over-year basis, consistent with previous readings but slightly below projected figures. Core PCE, which excludes the effects of food and energy prices, similarly increased by 2.6%, reflecting stability but falling short of market expectations.
Looking ahead, market participants are closely monitoring the Federal Reserve’s upcoming decisions. The CME FedWatch Tool indicates that traders are almost fully prepared for a rate reduction at the September meeting, which aligns with comments from some Federal Reserve officials who have expressed a need for adjustments due to softening inflation and an unexpected rise in unemployment rates.
In Europe, discussions about potential rate cuts at the European Central Bank are gaining momentum. An influential member of the ECB, Francois Villeroy de Galhau, recently mentioned the justification for considering reductions to the institution’s key interest rates at their next meeting. He emphasized the importance of timely action in light of prevailing economic conditions, suggesting that a decision to lower rates would be a prudent course of action.
In summary, with the backdrop of mixed economic indicators and central bank deliberations, the EUR/USD pair sees an upward trajectory driven by expectations of monetary policy changes across the Atlantic.
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