- The Euro dips as Powell expresses a cautious stance despite a 25 bps rate cut.
- The jobless claims data and the Philadelphia Fed report exceeded expectations, bolstering the dollar’s performance after the FOMC meeting.
- ECB officials maintain a neutral tone, stating inflation risks are balanced while acknowledging a weak growth outlook.
The EUR/USD saw an annual peak on Thursday but later fell by 0.22%, influenced by encouraging U.S. economic figures and perceptions regarding Federal Reserve Chairman Jerome Powell. The currency pair is trading around 1.1780 after reaching a daily high of 1.1848.
EUR/USD declines 0.22% following strong U.S. data and Fed comments.
During the North American trading hours, the employment statistics showed a reduction in the number of Americans applying for unemployment benefits compared to earlier estimates. The Philadelphia Fed Manufacturing Index also reported positive findings in September, indicating economic improvement in that area.
While the U.S. data was favorable, the downward trend for EUR/USD started after the Fed’s decision on Wednesday. The central bank cut interest rates by 25 bps, which propelled the pair to an annual high of 1.1918. However, Chairman Powell’s press conference seemed to favor sellers or, perhaps, led buyers to take profits.
Powell stated that the balance of risks has shifted, noting a softening in labor demand while inflation remains “slightly rising.” He mentioned a lack of widespread support for a 50 basis point cut and stressed that the Fed isn’t rushing to adjust policy.
Across the Atlantic, European Central Bank (ECB) officials, led by Stournaras and Escriva, emphasized a flexible and neutral policy. They indicated that current rates are being evaluated appropriately and inflation risks are balanced, though growth risks are skewed downwards.
Daily Market Movers: Euro/USD downturn amid dollar strength despite Fed rate cut
- Initial U.S. unemployment claims dropped to 231K for the week ending September 13, a significant decline from the previous estimate of 264K, while continuing claims decreased from 1.939 million to 1.920 million.
- Additionally, the Philadelphia Fed’s production index rebounded sharply in September, soaring from -0.3 in August to 23.2, outpacing the sector forecast of 2.3, signaling robust activity.
- The Federal Reserve noted an increased downside risk to the labor market. While unemployment remains low, it has ticked slightly higher. The policy decision was not unanimous, with Governor Stephen Milan advocating for a larger 50 basis point cut in line with certain analysts’ expectations.
- The Economic Forecast Summary (SEP) indicates an expected further 50 bps rate reduction by year-end, with GDP growth revised upwards from 1.4% to 1.6%, while the unemployment rate remained steady at 4.5%.
- Policymakers anticipate PCE inflation to hit 3% by 2025, with core figures projected to reach 3.1%, unchanged from prior forecasts.
- The US Dollar Index (DXY), which measures performance against a basket of six currencies, climbed 0.39% to stand at 97.39.
Technical outlook: EUR/USD declines below 1.1800, yet remains bullish
The EUR/USD is retreating but exhibits an “evening star pattern,” maintaining a bullish bias. This candle pattern signals bearish sentiment, but bears must clear the September 11 low at 1.1659.
The relative strength index (RSI) is rising from below the excess area.
If EUR/USD moves above 1.1800, we might see it challenge the year-to-date peak of 1.1918, aiming for a rise above 1.1850.
