More and more signs suggest that Federal Reserve will begin cutting rates at September meeting. Inflation has almost fallen back to the Fed's target, labor market is cooling and yesterday's FOMC minutes showed that vast majority of FOMC members see September rate cut as appropriate given reduce risks to inflation mandate and increased risks to jobs mandate. This continues to put pressure on US dollar, which continues to slide against other major currencies.
EURUSD jumped above late-December 2023 high at 1.1139 yesterday and is now trading at the highest levels since late-July 2023. However, with markets already pricing in a very aggressive Fed easing in the remainder of 2024 (around 100 basis points of rate cuts over 3 remaining meeting), there is a risk of a pullback on the pair. This is because current market pricing suggests that Fed will cut rates by 50 basis points at least once this year. There is a risk that Fed will rather opt to go with back-to-back 25 basis point rate cuts as macro data from the United States, although weakening, is not showing a need for a half-point cut.
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Open account Try demo Download mobile app Download mobile appA key event to watch is tomorrow's speech from Fed Chair Powell at Jackson Hole symposium. It is expected that Powell will hint at an imminent launch of easing cycle. However, failure to deliver a speech that matches dovish market expectations risks triggering USD strengthening, and a pullback on EURUSD.
Source: xStation5
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