- Fed officials displayed differing views: Bostic, Musalem, and Hammack leaned hawkish, while Miran was dovish, suggesting neutral rates at just 2%.
- The dollar index dropped by 0.34%, landing at 97.31, which weakened the USD and boosted the EUR/USD pair.
- Traders are eager for new insights from Powell’s upcoming speech and the Flash PMI data set to be released in the US and Europe.
With the dollar struggling, the EUR/USD pair has rallied by 0.47%, currently hovering around 1.1800, as market participants anticipate hints of further easing from the Federal Reserve.
Weak Dollar Strengthens Euro as Traders Look Toward PMI Reports
On Monday, comments from Fed officials made waves. Atlanta Federal President Rafael Bostic, St. Louis Fed’s Alberto Musalem, Richmond’s Thomas Birkin, Cleveland Fed’s Beth Hammack, and Governor Stephen Milan made remarks ahead of Chairman Jerome Powell’s address on Tuesday.
Bostic, Musalem, and Hammack leaned toward hawkish perspectives, while Birkin presented a neutral stance. On the dovish side, Milan discussed a neutral funds rate around 2%.
The euro received a lift from the general weakness of the dollar, as indicated by the US Dollar Index (DXY) value of 97.31, down 0.34%.
Across the Atlantic, Bundesbank President and European Central Bank member Joachim Nagel expressed that current euro valuations were not a worry for him. Meanwhile, attention is focused on the Flash PMI data expected from S&P Global in the US and HCOB in Europe.
Market Movements: EUR/USD Resilient Amid Fed Officials’ Hawkish Comments
- Bostic expressed caution regarding potential interest rate cuts in October given inflation risks, though he acknowledged growing risks related to employment.
- Musalem indicated support for recent cuts as a precaution to bolster the labor market, suggesting he would lean towards further easing if employment data weakened and inflation expectations stabilized.
- Governor Milan described current policy as “very restrictive,” forecasting a neutral Fed funds ratio close to 2%. Birkin noted that while consumers are managing small tariff costs, economic uncertainties appear to be fading.
- Hammack highlighted challenges faced by the Fed on both inflation and employment fronts, describing the current environment as one of “low-employment, low-burn” where businesses are hesitant to hire.
- The EU criticized Russia for trespassing European airspace three times in two weeks, warning that such actions threaten security, according to reports. They emphasized the right of all nations to defend themselves against such violations.
- The Kremlin, however, dismissed these claims as baseless, arguing they were aimed at inciting unwarranted tensions.
- Consumer confidence in the Euro area improved slightly to -14.9 in September, up from -15.5 in August.
- Futures markets suggest a 90% likelihood of a 25 basis point Fed rate cut this month and an almost 80% chance of another reduction in December.
Technical Analysis: EUR/USD Bulls Emerge, Eyeing 1.1800
The EUR/USD pair shows an upward bias after forming a bullish candle pattern. Momentum has built, and the relative strength index (RSI) is trending higher into bullish territory. If the RSI manages to exceed its last peak at 65.44, it will signal a stronger trend.
Should EUR/USD break past 1.1800, the next resistance levels would be the annual peak around 1.1918 to 1.1850. A break beyond that could lead towards 1.2000. Conversely, a slide below 1.1750 opens the door for further declines, with initial support found at 1.1700 and a 100-day SMA nearby at 1.1560-1.1574.
