- EUR/USD faces challenges as the US dollar strengthens due to increased risk aversion.
- Traders are looking forward to the HCOB PMI data for both the Eurozone and Germany due later on Tuesday.
- CME’s FedWatch tool indicates a 91.6% probability that the Federal Reserve will lower its rates next month.
EUR/USD is set to extend its decline for a second consecutive day, hovering around 1.1560 during Tuesday’s Asian trading hours. The currency pair is weakening as the US dollar gains strength, attracting traders’ attention amid recent global trade shifts and evolving monetary policy expectations. Market participants are particularly focused on the HCOB composite and service PMI data from the Eurozone and Germany, which are expected later today. After that, attention will turn to the US ISM PMI in the North American session.
Market sentiment is growing cautious, fueled by concerns regarding the independence of the Federal Reserve. The unexpected resignation of US Federal Reserve Governor Adriana Kugler on Monday provided President Trump with an earlier chance to influence the central bank. This may open the door for him to appoint someone who aligns more closely with his call for reduced rates.
Yet, the Greenback may face challenges as the likelihood of a Federal Reserve rate cut in September rises, particularly after recent weak labor market data has raised doubts about the US economic outlook. According to the CME’s FedWatch tool, there’s a 91.6% chance that the Fed will cut rates next month.
Moreover, San Francisco Fed President Mary C. Daly mentioned on Monday that while there are numerous reasons to consider rate cuts, the prevailing uncertainty complicates matters for Fed officials, warning against moving too quickly. She emphasized the need to ensure that inflation is under control before making decisions.
On the other hand, the European Central Bank (ECB) is anticipated to maintain current rates, following an annual inflation rate of 2.0% in July, which exceeded the forecast of 1.9%. Additionally, traders are approaching the potential imposition of a 15% tariff on goods imported from the European Union (EU) with caution.
