The FED’s Stance and Currency Movements
- The Federal Reserve remains stable, but Jerome Powell is cautious about inflation and tariffs, adopting a hawkish tone.
- Recent US GDP and labor data have exceeded expectations, reinforcing the Fed’s position on higher interest rates.
- The EUR/USD pair is at risk of further decline due to Eurozone growth issues and a light economic calendar.
The EUR/USD has dropped for three consecutive days, falling over 1.20% as the Federal Reserve maintains its interest rate stance and Powell leans towards a hawkish approach. Strong growth figures from the US, along with a lack of significant economic announcements from the Eurozone, have pushed the exchange rate below 1.1430, marking a decline of more than 2.71% for the week.
The euro continued to weaken as Fed Chairman Powell took a cautious view ahead of the September meeting, offering no optimistic guidance. He noted that the influence of tariffs on inflation might not be as immediate as some might think, indicating a challenging environment for rate cuts.
“The impact of tariffs on prices might take longer to materialize than initially considered,” Powell remarked.
Earlier, the Federal Reserve agreed to keep the federal funds rate steady within the range of 4.25% to 4.50%, according to a 9-2 vote.
US economic indicators showed a robust recovery, with GDP growth surpassing estimates. Initial labor data indicated a strong rebound as private sector hiring increased, bouncing back from less favorable ADP reports in May and June.
On the Eurozone front, economic growth registered at 1.4% year-on-year in the second quarter of 2025, slightly down from 1.5% in the previous quarter. Germany reported a GDP increase from 0% to 0.4% quarter-over-quarter in the second quarter of 2025.
Retail sales in Germany saw a 1% month-over-month rise in June, recovering from a 1.6% drop in May, which was better than the expected growth of 0.5%.
As the week progresses, key reports are anticipated, including core personal consumption expenditures (PCE), initial unemployment claims, non-farm payroll figures, and ISM manufacturing PMI.
Market Overview: EUR/USD Response to US Data
- The Federal Reserve’s monetary policy update highlighted steady unemployment levels and mild inflation, though growth has softened in the first half of the year.
- The Fed reiterated its aim for maximum employment and a 2% inflation rate, acknowledging increased uncertainty regarding the economic outlook.
- The US economy posted a solid recovery in Q2 2025, with GDP growing by 3.0% quarterly, exceeding the 2.4% forecast and bouncing back from a -0.5% decline in Q1.
- The ADP National Employment Report indicated a significant rise in private sector jobs, with an addition of 104,000 in July, far surpassing the anticipated 78,000 and reversing a decline of 33,000 in June.
- However, the housing market appears strained, as pending home sales fell by 0.8% month-over-month in June after a 1.8% increase in May, primarily attributed to rising mortgage rates.
- Regarding the European Central Bank’s monetary policy, Deutsche Bank has low expectations for further rate cuts until late 2026, and they do not foresee any significant indicators coming soon.
Technical Analysis: EUR/USD Trading Trends
The EUR/USD is trading below the 1.1500 mark, with losses extending to approximately 1.1400, nearing the 100-day Simple Moving Average (SMA) of 1.1355. The relative strength index (RSI) suggests bearish momentum, having dipped from around 40 to 34.60, indicating potential further downturns for the currency pair.
If the EUR/USD falls below 1.1400, the next support level to watch would be at the 100-day SMA and 1.1300. Alternatively, if the pair rises above 1.1500, it may encounter resistance around the 50-day SMA at 1.1572.
