The EUR/USD is up slightly around the 1.0860 level in early Asian trading hours on Monday. The pair rose as market traders are widely anticipating the US Federal Reserve to cut interest rates in September, which caused the dollar (USD) to move sharply lower.
Inflation in the US, which is generally measured by the change in the personal consumption expenditures (PCE) price index, barely fell in June compared to a year ago, easing the way for an interest rate cut by the Federal Reserve in September. PCE inflation continued its slowdown in June, falling from 2.6 per cent y/y in May to 2.5 per cent in June. On a monthly basis, the PCE figure rose by about 0.1% in June, after being unchanged in May. The core PCE price index, the measure of inflation used for an annual view and preferred by the Fed, rose about 2.6 year-on-year in June, up from 2.5% in May, according to Commerce Department figures released on Friday.
However, the lower June inflation in the US is not fully potent for the Fed to start cutting interest rates at its expected August meeting on Wednesday this week. Similarly, analysts noted that there is significant progress on inflation and this will most likely allow the Fed to move closer to interest rate cuts and as such, they also said they still expect three rate cuts this year, starting at the September FOMC meeting. Financial markets have dismissed by about 90% the likelihood of a September cut, followed by another cut in November and December, according to the CME’s FedWatch tool.
On the other hand, traders expect more rate cuts from the European Central Bank (ECB) in the near term. This, likewise, could weigh on the euro (EUR) versus the dollar (USD). The previous week, the ECB left interest rates unchanged, although weaker German IFO survey results and other softer data are paving the way for another rate cut by the bank. Traders will be looking closely at preliminary second quarter Gross Domestic Product (GDP) data for Germany along with the euro zone. If the data turns out better than expected, the common currency could gain ground against the dollar.
Inflation in the US, which is generally measured by the change in the personal consumption expenditures (PCE) price index, barely fell in June compared to a year ago, easing the way for an interest rate cut by the Federal Reserve in September. PCE inflation continued its slowdown in June, falling from 2.6 per cent y/y in May to 2.5 per cent in June. On a monthly basis, the PCE figure rose by about 0.1% in June, after being unchanged in May. The core PCE price index, the measure of inflation used for an annual view and preferred by the Fed, rose about 2.6 year-on-year in June, up from 2.5% in May, according to Commerce Department figures released on Friday.
However, the lower June inflation in the US is not fully potent for the Fed to start cutting interest rates at its expected August meeting on Wednesday this week. Similarly, analysts noted that there is significant progress on inflation and this will most likely allow the Fed to move closer to interest rate cuts and as such, they also said they still expect three rate cuts this year, starting at the September FOMC meeting. Financial markets have dismissed by about 90% the likelihood of a September cut, followed by another cut in November and December, according to the CME’s FedWatch tool.
On the other hand, traders expect more rate cuts from the European Central Bank (ECB) in the near term. This, likewise, could weigh on the euro (EUR) versus the dollar (USD). The previous week, the ECB left interest rates unchanged, although weaker German IFO survey results and other softer data are paving the way for another rate cut by the bank. Traders will be looking closely at preliminary second quarter Gross Domestic Product (GDP) data for Germany along with the euro zone. If the data turns out better than expected, the common currency could gain ground against the dollar.
