Title: EUR/USD Struggles to Extend Recovery Amid Mixed Fundamentals
Original author: FXStreet Team
Adapted and expanded by AI Writer based on article published on Mitrade (source: https://www.mitrade.com/insights/forex-analysis/eur/fxstreet-EURUSD-202509031531)
The EUR/USD currency pair continues to face significant headwinds as it attempts to recover from recent lows. Despite a modest rebound witnessed earlier in the trading week, the euro has struggled to sustain upward momentum against the U.S. dollar. This article offers an in-depth analysis of the current trends influencing the EUR/USD pair, supported by market data, economic indicators, and central bank policy outlooks.
Overview of Recent Market Behavior
– Over the past few trading sessions, EUR/USD attempted to claw back gains from multi-month lows.
– The recovery efforts have largely been capped under the psychological resistance of 1.0900.
– Market sentiment remains cautious amid mixed macroeconomic data and political uncertainties in the eurozone.
The underlying tone for the pair remains bearish in the short term, as investors continue to favor the stability and higher yields offered by the U.S. dollar. The euro, on the other hand, remains vulnerable due to concerns surrounding eurozone growth, inflation, and divergent monetary policy projections between the European Central Bank (ECB) and the Federal Reserve.
U.S. Economic Indicators Support a Firm Dollar
The U.S. dollar remains well-supported by continued strong economic performance. In particular, July and August data provided positive surprises in key areas:
– Job Market Resilience: U.S. non-farm payrolls released recently showed continued strength in the labor market, with headline job creation exceeding expectations.
– Inflation Progress: The Federal Reserve’s preferred measure of inflation, the Core Personal Consumption Expenditures (PCE) Price Index, increased moderately, reinforcing expectations that inflation pressures, although persistent, are gradually easing.
– Consumer Spending: Retail sales reports and Personal Spending metrics indicate robust consumer activity, further solidifying the case for sustained economic momentum in Q3 and potentially into Q4.
Additionally, Fed officials have maintained a cautious tone in public communications, reiterating the need to observe data before making further interest rate decisions. Nevertheless, they have consistently underscored the possibility of another hike if inflation flares up again.
Federal Reserve Policy Outlook
– The Fed paused its rate hike campaign in the latest Federal Open Market Committee (FOMC) meeting but left the door open for future policy tightening.
– The September meeting minutes suggested that most officials anticipate one more rate hike by the end of the year if inflation remains sticky.
– Markets are currently pricing in less than a 30 percent probability of a hike in the November meeting, although December remains a possibility.
The implication for EUR/USD is that as long as the dollar continues enjoying yield support from the Fed’s tighter stance and robust U.S. growth, the euro will struggle to find balance without a strong catalyst from the euro area.
ECB Remains Dovish Despite Higher Core Inflation
Contrary to earlier expectations, the European Central Bank opted for a cautious rate increase of 25 basis points in its most recent meeting, possibly marking the end of its current tightening cycle. ECB President Christine Lagarde took a balanced view, acknowledging improvement in controlling inflation while also noting weakening economic data across key eurozone economies. Important highlights include:
– Eurozone Inflation Trends:
– Headline inflation readings have started to decline, consistent with ECB forecasting models.
– Core inflation remains elevated, driven mostly by services inflation and wage growth.
– Economic Weakness in Germany:
– The German economy continues to struggle under the weight of declining manufacturing output and reduced export competitiveness.
– Business sentiment surveys such as the ZEW and Ifo indices show persistent pessimism in the economic outlook.
– Fragmentation Risk:
– Lagarde mentioned the need to monitor financial fragmentation, highlighting concerns about uneven monetary conditions across euro area countries. These regional
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