Euro to Dollar Forecast: EUR/USD Rallies to 1.17 After Powell’s Speech
By James Miller – exchangerates.org.uk
The Euro (EUR) gained notable strength against the US Dollar (USD) in foreign exchange markets, with the EUR/USD exchange rate surging to a high of 1.17. The rally followed Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Economic Symposium, in which he struck a less hawkish tone than markets had anticipated. Market participants interpreted Powell’s remarks as a signal that the Fed may be nearing its peak in the current interest rate tightening cycle, applying downward pressure on the greenback.
This article explores the key factors contributing to the euro’s gains, a detailed analysis of Powell’s speech, market reactions, and projections for the EUR/USD exchange rate heading into the final quarter of 2024.
EUR/USD Hits 1.17: Market Response to Powell’s Comments
The euro’s rally against the dollar marks a significant shift in short-term FX market sentiment. Following Powell’s address, traders recalibrated expectations regarding further interest rate hikes by the Federal Reserve, triggering broad-based USD weakness. The development gave the single currency, already bolstered by improving data out of the eurozone, the momentum to ascend to 1.17.
Key Highlights:
– EUR/USD touched its highest level since the beginning of the year, reaching the 1.17 mark.
– Powell suggested that while inflation remains a concern, the Fed may adopt a more cautious, data-dependent approach in the coming months.
– Market participants interpreted this as a sign that the Fed may be at or near the peak of its interest rate cycle.
– The USD Index (DXY), which measures the dollar against a basket of major currencies, fell to a two-month low.
– Traders scaled back their bets on further Fed hikes, supporting risk appetite and prompting flows into the euro.
Powell’s Tone: Less Hawkish Than Expected
During the highly anticipated Fed symposium held in Jackson Hole, Powell acknowledged that inflation in the U.S. remains above the central bank’s long-term target, but he also cautioned against overtightening.
Noteworthy points made by Powell included:
– A reaffirmation of the Fed’s 2 percent inflation target.
– Acknowledgment that inflation has shown signs of moderation over the past few months.
– A warning that the full effects of previous rate hikes may not yet be fully reflected in the economy.
– Repeated emphasis on a data-driven approach going forward.
– Absence of new policy actions or explicit guidance about further rate increases.
Market analysts noted that while Powell’s statement left the door open to further tightening if inflation were to resurge, the balanced and cautious rhetoric contributed to a decline in U.S. Treasury yields, encouraging investors to move away from the dollar.
US Data Turns Mixed, Adding to Dollar Weakness
In the lead-up to Powell’s speech, economic indicators from the United States presented a mixed picture. Growth figures remained relatively robust, underpinned by a resilient labor market and consumer spending. However, inflation continued to exhibit signs of easing, and the housing sector showed vulnerabilities.
Key economic data influencing the dollar’s trajectory:
– Core PCE Inflation, the Fed’s preferred inflation measure, recorded a slight decline in July to 4.2 percent year-on-year.
– Retail sales for July came in stronger than expected, suggesting ongoing consumer activity.
– Jobless claims remained historically low but showed slight increases in some weeks, suggesting a slowing pace of job growth.
– Housing starts and building permits weakened, signaling potential slowing in real estate momentum.
In this environment, any dovish policy recalibrations by the Fed are viewed as potential risks for the dollar’s bullish path, further cementing the EUR/USD rally.
Eurozone Data Supporting EUR Gains
While the initial gains in EUR/USD were driven by dollar weakness, the single currency also found strength thanks to economic resilience within the euro area. The most recent economic releases
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