Euro strengthens above 1.1700 before Lagarde’s speech.

Market Update on EUR/USD and Economic Outlook

EUR/USD hits 1.1705 during Asian trading hours.

Market anticipates an 89% probability of a 25bps rate cut by the Fed in September.

Von Der Leyen indicates Europe has a solid plan for troop deployment in Ukraine.

The EUR/USD pair is currently showing strong performance, hovering around 1.1705 in the Asian markets on Monday. The anticipation of a possible reduction by the US Federal Reserve continues to exert pressure on the dollar compared to the euro. Later today, Christine Lagarde, the President of the European Central Bank (ECB), is scheduled to deliver a speech.

The U.S. Bureau of Economic Analysis reported that the Personal Consumption Expenditure (PCE) price index was consistent with expectations for July, with headline PCE climbing 2.6% and Core PCE, which omits the more erratic food and energy prices, rising by 2.9% during the same timeframe. Interestingly, despite this inflation report, traders have adjusted their forecasts, believing the Fed might lower rates sooner than anticipated this month.

Jerome Powell, the Chairman of the Fed, hinted earlier this month during the Jackson Hole address that the Fed is open to policy easing. Meanwhile, hawkish Federal Government Governor Christopher Waller has suggested that rate cuts would be appropriate if further labor market data continues to show weakness.

Currently, the CME FedWatch tool indicates a nearly 89% chance that the Fed will cut rates by 25 basis points at their upcoming policy meeting in September.

On the geopolitical front, tensions between Russia and Ukraine continue to affect the euro negatively. Ursula von der Leyen, President of the European Commission, mentioned that European nations are coordinating a detailed plan regarding potential military deployments to Ukraine, which aligns with US support for security guarantees post-dispute.

This ongoing conflict not only leads to increased energy prices but also heightens geopolitical uncertainty within the eurozone, which could further complicate economic forecasts.