- The US dollar sees an uptick as it moves away from riskier assets amid rising bond yields and ongoing tariff tensions.
- Trump’s termination of Fed Governor Lisa Cook has led to legal questions in the Court of Appeals regarding its legitimacy.
- France’s uncertain voting situation and unexpected EU inflation levels are increasing market volatility, hinting that the ECB Hawks might end the mitigation cycle soon.
The euro dipped over 0.60% during the North American trading session, influenced by a risk-averse atmosphere stemming from concerns over the Federal Reserve’s independence and contentious US policies. It traded around 1.1642 after dipping below the 1.1700 mark.
The euro declines amid global bond market shifts and French political issues
In the wake of Trump’s dismissal of federal Governor Lisa Cook, a court decision is still pending as the administration presses for lower interest rates. Global bond yields have also seen a dip as traders demand higher premiums than government debt.
Over the weekend, the US Court of Appeals labeled Trump’s tariffs as illegal, but they remain in effect until October 14th as the case is set to escalate to the Supreme Court.
These developments are weighing heavily on the euro, prompting traders to turn to gold and US dollars for safety.
In Europe, the no-confidence vote in France on September 8th further dampened sentiment for many G8 currencies, with the exception of the greenback.
Looking at the data, the US Manufacturing Manager Index (PMI) offers mixed signals, with reports from the Institute of Supply Management (ISM) and S&P Global shifting slightly.
Meanwhile, inflation figures from the EU exceeded expectations, providing the ECB Hawks with a possible reason to indicate that the end of the easing cycle may be near.
Market Update: EU/USD declines despite high inflation rates in the EU
- The ISM Manufacturing PMI has contracted for six months, rising from 48.0 to 48.7, still below the forecast of 49.0. This indicates persistent inflation pressures linked to tariffs despite a slight easing in price escalation.
- S&P Global echoed a similar sentiment, showing the PMI dropping from 53.3 to 53.0, suggesting slowing manufacturing momentum.
- ECB member Isabel Schnabel remains skeptical on cutting rates, while Kocher advises caution at the next meeting, and Muller advocates maintaining current holdings to gauge economic developments.
- Latest EU inflation metrics were higher than anticipated in August, with the harmonized consumer price index rising 2.1% from projections, while core HICP remained in line with forecasts.
- Speculation around the Fed reducing rates at its September meeting continues to build, with an 89% likelihood of a policy easing compared to a mere 8% chance of a cut by the ECB.
Technical Analysis: EUR/USD aims for 1.1600
If the currency pair slips below the 20-day and 50-day simple moving averages (SMA) of 1.1660 and 1.1664 respectively, it may indicate a loss of momentum among buyers, particularly with thoughts of the upcoming non-farm payroll (NFP) data.
After a recent rise, the relative strength index (RSI) has shifted bearish, suggesting that sellers might take the reins in the short term.
If EUR/USD continues to fall below 1.1600, traders might pay attention to the 100-day SMA at 1.1517 and a potential drop to 1.1500. On the flip side, if buyers manage to push the price above 1.1665, a test of 1.1700 and the August 22 high of 1.1742 could be on the horizon. An even stronger upward move might target the yearly high of 1.1829.
