- The US dollar has recovered from a three-year low following the Federal Reserve’s interest rate cut, influenced by rising US Treasury yields later in the week.
- Federal Reserve officials Daly and Kashkari adopted cautious tones, while Governor Miran expressed a preference for more aggressive measures.
- Protests against spending cuts in France are increasing pressure on President Macron’s new Prime Minister, presenting political challenges for the euro.
During the North American session, the EUR/USD pair is expected to decline on Friday. The dollar rebounded after hitting its lowest point in three years due to the recent Federal Reserve interest rate cuts. With heightened revenue from US Treasuries, political unrest in France has bolstered the dollar, pushing the pair lower.
With a Fed speaker addressing the issue, EUR/USD is likely to yield higher, while French concerns may hinder the euro’s momentum
The EUR/USD was trading at 1.1747, down 0.32%, affected by lighter economic data from both sides of the Atlantic. Comments from Fed officials following a 25 basis point interest rate cut last Wednesday indicated a mostly neutral stance from the Federal Open Market Committee (FOMC).
The US Economic Docket included remarks from San Francisco President Mary Daly, Minneapolis President Neil Kashkari, and Governor Milan. Daly’s comments were somewhat subdued, while Kashkari maintained a neutral stance, allowing for the possibility of a future rate hike if necessary. In contrast, Governor Milan confirmed he aligned with the lower end of the Fed’s funding rate projections, asserting that the 50 basis point reduction wouldn’t alarm the market.
In France, ongoing protests are exerting downward pressure on the euro as hundreds of thousands gathered in major cities on Thursday, urging President Emmanuel Macron and Prime Minister Sebastian Lecomme to reconsider spending cuts proposed by former Prime Minister François Beauloux.
Looking ahead to next week, the US Economic Docket will release several key indicators, such as the S&P Global Flash PMI, durable goods orders, unemployment claims, GDP data, and Core PCE, which is closely watched by the Fed. Additionally, several Fed officials are expected to make media appearances.
Daily Market Update: EUR/USD constrained by neutral comments from the Federal Reserve
- Mary Daly highlighted that the Fed’s rate cut aims to address the labor market’s weakness, reflecting a significant softening of the US economy over the past year.
- Neil Kashkari stated that while he supported this week’s rate cuts due to potential unemployment increase threats, it’s challenging to see inflation soaring above 3% as a result of tariffs; he suggested holding interest rates steady as the job market improves and inflation potentially rises.
- Governor Stephen Milan noted that interest rates should align closely with neutral levels and mentioned he would provide an update on his views on Monday.
- The US Dollar Index (DXY), which measures the dollar against a basket of six currencies, rose by 0.31% to 97.66.
- The latest weekly jobless claims fell to 231K for the week ending September 13, dropping from a previous week’s rise of 264K, which was higher than the 240K forecast.
- In another positive note, the Philadelphia Fed’s manufacturing index bounced back sharply in September, rising from -0.3 in August to 23.2, significantly exceeding the sector’s anticipated 2.3.
- Current futures markets indicate a 90% likelihood of a 25 basis point rate reduction by the Fed this month, and nearly 80% chance of another cut in December.
Technical Outlook: EUR/USD below 1.1750, bullish bias remains
The EUR/USD pair has experienced some correction after recent gains, with an “evening star” pattern confirming a softening of the euro. The bears have not yet breached the low on September 11 at 1.1659, but are gaining momentum. Breaking below the 1.1700 mark suggests a confluence of the 100-day simple moving average and the August 27 swing low near 1.1560-1.1574.
The Relative Strength Index (RSI) still supports a broader upward trajectory, without showing overbought conditions. A rise above 1.1800 could pave the way for a retest of 1.1850 and the previous day’s high around 1.1918.
