Original article by David Becker, originally published on TradingNews.com
EUR/USD Price Forecast: Euro Holds Steady at 1.1630 as Markets Brace for Fed Rate Cut
The EUR/USD currency pair is holding relatively firm around the 1.1630 level as investors await the next key event on the economic calendar — the U.S. Federal Reserve’s upcoming interest rate decision. Market consensus increasingly suggests that the Fed is preparing to ease monetary policy in response to a deceleration in economic growth and signs of weakening inflationary pressure. Meanwhile, the Euro is maintaining stability despite persistent concerns over energy supplies and the possibility of a slowdown in the Eurozone economy.
As traders closely monitor central bank policy decisions, shifting sentiment continues to dictate short-term forex market dynamics. In this article, we examine the key drivers of the EUR/USD pair, assess the technical outlook, and explore the potential implications of a Federal Reserve rate cut on the broader currency landscape.
Macroeconomic Backdrop
The U.S. economy is presenting mixed signals, with job market resilience contrasting with slower activity in manufacturing and housing data. Inflation has moderated from its multi-decade highs, providing the Fed with more flexibility to adjust interest rates without immediately stoking fears of runaway prices.
On the other side of the Atlantic, the Eurozone remains under pressure. Although inflation in the EU has also cooled, growth continues to be hampered by high energy costs and weak industrial output. The lingering effects of the war in Ukraine, coupled with supply chain disruptions, are compounding the continent’s challenges.
Key Economic Factors Influencing the EUR/USD Pair:
• Federal Reserve Policy: The Fed’s interest rate guidance remains the most critical variable impacting the dollar’s trajectory. If the Fed moves forward with an expected rate cut, the dollar is likely to weaken, which would give the EUR/USD pair upward momentum.
• Eurozone Economic Weakness: Despite the Euro’s recent firmness, several headwinds persist. Germany, the region’s largest economy, reported weaker-than-expected industrial production figures, signaling ongoing vulnerability across the bloc.
• Energy Prices: Elevated energy costs in Europe continue to strain both consumers and industrial producers. Although natural gas prices have pulled back from their peaks, they remain well above historical averages.
• Inflation Outlook: U.S. core inflation on a year-over-year basis remains above the Fed’s target of 2 percent but is showing signs of declining. Similarly, inflation prints in the Eurozone have eased, albeit at a slower pace than in the U.S.
• Market Sentiment and Risk Appetite: Broader risk sentiment across equity markets and bond yields can play a significant role in dictating short-term capital flows. Investors’ appetite for risk, often driven by geopolitical developments or corporate earnings, may indirectly impact safe-haven demand for the U.S. dollar.
Recent Data and Developments
Both regions have recently reported key economic data that further validate the diverging growth patterns. In the U.S., the latest employment report showed that non-farm payrolls increased, albeit at a slower pace than the previous quarter. Unemployment remained steady near historical lows, but wage growth decelerated. Meanwhile, the Institute for Supply Management (ISM) manufacturing index dipped into contraction territory, indicating potential weakness within the industrial base.
Across Europe, the composite Purchasing Managers’ Index (PMI) for the Eurozone fell below the threshold of 50, indicating contraction in both services and manufacturing sectors. This has raised concerns about stagnation or the potential return of economic recession in the region early next year.
What the Fed’s Decision Could Mean for EUR/USD
The Fed’s dovish pivot was largely anticipated by the market after several months of slowing inflation and conflicting economic signals. If the central bank chooses to reduce interest rates — or even hints at it with dovish forward guidance — the dollar will likely face selling pressure.
Potential implications for the EUR/USD pair:
• If the Fed cuts rates by 25 basis points:
– The dollar might weaken against most
Explore this further here: USD/JPY trading.