Euro Stabilizes Near 1.1640 as Fed Rate Cut Expectations Rise Amid Soft U.S. Data

Title: Euro Holds Steady Around 1.1639 Amid Fed Rate Cut Speculation

Author: Originally reported by TradingNews. Rewritten and expanded for clarity and depth.

The euro remained relatively stable against the US dollar in recent trading sessions, finding support near the 1.1639 mark as traders continue to assess the probability of rate cuts from the Federal Reserve. Currency markets have remained sensitive to evolving economic data, central bank commentary, and geopolitical developments. The enduring theme remains monetary policy divergence between the European Central Bank (ECB) and the Federal Reserve, but lately, that narrative has shifted subtly due to signs that the Fed may take a dovish turn sooner than previously expected.

This article examines the current price action of the euro versus the US dollar (EUR/USD), reviews the macroeconomic catalysts influencing the market, and outlines potential market scenarios based on central bank policies and geopolitical forecasts.

Key Highlights:

– EUR/USD stabilizes near 1.1639 level following increased speculation over imminent US rate cuts
– Market participants repricing Fed expectations based on soft economic indicators and dovish Federal Reserve commentary
– European economy shows mixed signals as inflation trends lower but growth prospects remain tepid
– Euro is supported by declining US Treasuries yields, weaker dollar sentiment, and reduced geopolitical risk
– Technical indicators indicate consolidation but suggest possibility of upside if dollar weakness continues

Fed Rate Cut Bets Fuel Dollar Weakness

The primary catalyst behind the euro’s relative stability and the US dollar’s recent losses is growing anticipation that the Federal Reserve could commence rate cuts sooner than initially projected. Market expectations around US monetary policy have shifted notably in recent weeks due to several factors:

– Softer US macroeconomic data, including weaker job openings, falling ISM manufacturing indices, and consumer sentiment deterioration
– Persistent cooling of inflationary pressures as highlighted in Consumer Price Index (CPI) and Producer Price Index (PPI) readings
– Conciliatory tones from several Federal Reserve policymakers suggesting data dependence and readiness to adjust rates if necessary

According to CME FedWatch Tool:

– Probability of a Fed rate cut by September has surged above 60%, compared to 45% just a month ago
– Futures markets are pricing in two rate cuts for the remainder of the year, despite earlier expectations of a single cut or none at all

These developments have dampened demand for the greenback and allowed the euro to regain some buoyancy near the mid-1.16 range.

US Economic Releases Point Toward Slower Growth

The underlying macroeconomic backdrop in the United States has been instrumental in shaping current forex market dynamics. Recent data suggests the US economy may be encountering headwinds, prompting percolating fears of a broader economic slowdown:

– U.S. ISM Manufacturing Index dropped to 48.7 in the latest report, marking contraction territory for consecutive months
– Nonfarm payroll figures showed a lower-than-anticipated job addition of 165,000 in the latest monthly data
– Retail sales also missed forecasts, growing at just 0.2% against expectations of a 0.4% rise, indicating consumer hesitancy

Such figures diminish the case for the Fed to remain in a prolonged pause or hike scenario. Instead, they reinforce calls for policy accommodation, putting downward pressure on the US dollar.

Fed Officials Reinforce Dovish Signals

Fed Chair Jerome Powell and other key members of the Federal Open Market Committee (FOMC) have emphasized that the central bank remains data-driven and attuned to risks of overtightening. Recent public comments have taken on a more cautious tone:

– Powell: “We are prepared to adjust policy as needed should conditions warrant more accommodation.”
– New York Fed President John Williams: “The risks to the outlook are balanced, and we remain vigilant in our monitoring of economic indicators.”
– Atlanta Fed President Raphael Bostic: “If inflation continues its downward trajectory, policy normalization may be considered sooner.”

Such commentary has been interpreted by markets as a preamble

Read more on EUR/USD trading.

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