The EUR/USD pair has dropped over 0.50% to below 1.1600 as the US dollar continues to strengthen, rising more than 1.70% against a basket of six currencies—this is largely due to a prevailing risk-averse sentiment. Currently, the pair sits at 1.1563 after reaching a high of 1.1648 earlier in the day.
Dollar Gains as Risk Aversion and Weak German Data Weighs on Euro
The euro hit an eight-week low of 1.1542 on Thursday, influenced by political instability in France. The resignation of French Prime Minister Sébastien Lecornu has heightened concerns regarding the country’s budget deficit. Meanwhile, Lecornu is engaged in negotiations with opposition parties, and President Emmanuel Macron is expected to appoint a new prime minister by Friday.
In Germany, economic reports indicated that exports were weaker than anticipated while imports also dropped more than expected. Additionally, minutes from the latest European Central Bank meeting revealed that officials are feeling cautious amid significant uncertainties.
On the other side of the Atlantic, the U.S. government shutdown has entered its ninth day, with House Minority Leader Jeffries stating that discussions between House Republicans and Democrats are currently off the table.
In the backdrop, Fed Director Michael Barr adopted a somewhat hawkish viewpoint, indicating that tariffs are unlikely to cause inflation to spill over into the services sector, thus advocating caution concerning further monetary easing.
Minneapolis Fed President Neel Kashkari mentioned he mostly agrees with Barr’s stance.
Factors Influencing Daily Market Fluctuations: EUR/USD Declines Due to Dollar Strength
- Minutes from the Fed meeting showed a debate among policymakers regarding how to respond to evolving risks, with many acknowledging risks to the job market and expressing concerns about inflation. There was support for “further easing” for the remainder of the year.
- Fed officials are divided on the federal funds rate, with nine in favor of two rate cuts, while another nine advocate for one or no cuts.
- Michael Barr stated he doesn’t foresee tariffs impacting services inflation significantly. He emphasized that any future rate cuts will need a careful approach due to uncertainties in inflation and employment.
- Additional comments from Barr confirmed that the existing monetary policy remains appropriate, with interest rates seen as reasonably restrictive. He noted that GDP might stay strong in the third quarter of 2025.
- New York Fed President William Williams expressed support for additional interest rate cuts this year, highlighting risks associated with job market slowdowns, as reported in The New York Times.
- The European Central Bank meeting minutes released on Thursday indicated that officials perceive risks to inflation and growth as balanced, and they see no immediate need for rate adjustments in September. Concerns surrounding global trade policy may justify maintaining current policies and allow time for assessing the complete economic impact of tariffs.
- Money markets reflect a 94% probability that the Fed will reduce interest rates by 25 basis points at its next meeting on October 29.
Technical Outlook: EUR/USD Drops Below 1.1600, Focus Shifts to 1.1500
The EUR/USD pair has dipped below the 20-day simple moving average of 1.1644, indicating a downward shift in sentiment after breaking below 1.1600. The Relative Strength Index (RSI) is moving towards neutral territory, suggesting increasing selling pressure.
The immediate support level is found at 1.1550, followed by 1.1500. Beyond that, traders will look to the cycle low of 1.1391 from August 1.
If the pair moves upward, initial resistance levels will be at 1.1600, then 1.1650, and further up to 1.1700. A breakthrough at this level could expose the 1.1800 level and the previous high of 1.1830 from July 1.
