**EUR/USD Weekly Forecast: September Rate Cut Under Pressure from Resilient U.S. Inflation**
*Original article by Dhwani Mehta, adapted and expanded*
The EUR/USD currency pair continued its downward movement last week, affected by the release of strong U.S. inflation figures that cast doubt on the market’s expectations for a September interest rate cut by the Federal Reserve. Despite earlier gains, the euro came under pressure as investors reassessed monetary policy projections based on resilient economic data out of the United States.
Below is a detailed summary and analysis of the drivers that influenced EUR/USD dynamics over the past week and what to monitor in the week ahead.
## Overview
– EUR/USD slid for a second straight week
– U.S. Consumer Price Index (CPI) data remained elevated
– Traders reevaluated rate cut expectations, pricing in potential delay
– Euro’s upside limited by dovish tone from the European Central Bank (ECB)
– Ongoing geopolitical tensions and economic divergence weigh on the pair
## Last Week’s Major Forex Events
### 1. Sticky U.S. Inflation
The latest U.S. CPI release was the key event shaping market sentiment:
– Headline CPI rose 0.4% month-over-month (MoM) for March, matching February’s increase.
– Year-over-year inflation accelerated to 3.5%, higher than economists’ expectations of 3.4%.
– Core CPI, excluding food and energy, climbed 0.4% MoM, also higher than expected.
– Annual core inflation eased only slightly to 3.8%, from 3.9% in February.
This data indicated lingering inflationary pressures, reinforcing the argument that the Federal Reserve may need to maintain higher interest rates for longer.
### 2. Fed Rate Cut Expectations Revised
Following the hotter-than-expected inflation report:
– Futures markets reduced the implied probability of a September rate cut.
– At the beginning of April, traders were pricing in around 75 basis points of rate cuts for 2024.
– As of Friday, expectations shifted to fewer than 50 basis points of easing by year-end.
– Some economists speculated that rate cuts could be delayed until November or later if inflation remains stubborn.
Federal Reserve officials appeared hesitant to endorse premature rate cuts:
– Fed Chair Jerome Powell acknowledged the inflation data was “higher than expected.”
– He added that the Fed does not feel “urgency” to adjust rates in the current environment.
– Atlanta Fed President Raphael Bostic suggested only one rate cut would be appropriate in 2024.
– Several other Fed members warned that further inflation persistence could lead to extended policy tightening.
### 3. ECB Comments Reinforce Dovish Euro Outlook
While the Federal Reserve signaled caution on cuts, the European Central Bank continued its dovish rhetoric:
– ECB policymakers, including President Christine Lagarde, reiterated that the bank is on track for a June rate cut.
– Eurozone inflation has continued to ease, supporting a more accommodative stance.
– Core inflation fell to 2.9% in March, closer to the ECB’s 2% target.
– ECB board member Isabel Schnabel, often a hawkish voice, acknowledged that “disinflation is well advanced.”
The divergence between the ECB and the Fed’s policy trajectory has put downward pressure on the euro, pushing EUR/USD lower.
### 4. Weaker Eurozone Data
In addition to dovish central bank sentiment, weak economic performance in the eurozone didn’t help the euro:
– Germany’s industrial production dropped unexpectedly by 0.7% MoM in February.
– Eurozone retail sales fell 0.5% on the month, missing forecasts of -0.4%.
– Overall industrial activity remains subdued, fueling concerns about stagnation in the euro area.
This economic softness further widens the growth and yield differential with the U.S., increasing downward risks for the euro.
## EUR/USD Technical Analysis
EUR/USD broke
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