Title: EUR/USD Price Forecast: Can Fed Rate Cuts Push the Euro Above 1.18?
Author: TradingNews.com
Original URL: [EUR/USD Price Forecast](https://www.tradingnews.com/news/eur-usd-price-forecast-euro-near-117-118-can-fed-rate-cuts%3Dpush-euro-above-118)
Credit: TradingNews.com
The EUR/USD currency pair has been showing notable signs of life in recent weeks with the euro appreciating and finding firm footing in the 1.17–1.18 range. Much of this performance can be attributed to varying expectations about economic performance in the Eurozone and the United States, combined with shifting sentiment over the Federal Reserve’s next policy move. As market participants increase their bets on Federal Reserve rate cuts in the coming months, the euro has benefited, rallying to levels not seen in several months. This environment raises the question: can a dovish Fed push the euro above the key psychological and technical level of 1.18?
This article analyzes recent performance, explores the macroeconomic developments impacting the currency pair, and offers projections about where the EUR/USD might be headed based on current trajectories.
EUR/USD Current Momentum
At present, the EUR/USD has settled into a 1.17–1.18 band, showing increasing strength and reduced volatility. The current uptrend comes after a period of stagnation earlier this year when sticky inflation data in the US forced the Federal Reserve to hold interest rates higher for longer. However, with moderating inflation figures and a slowing pace in economic expansion, investors are now anticipating several 25-basis-point rate cuts in the near future, with some expecting the first as early as September.
Key catalysts supporting the pair’s bullish sentiment include:
– Reduced inflation in the US, as indicated by recent CPI and PCE reports
– Signs of deceleration in the labor market, with job openings declining and wage growth moderating
– Clearer signals from the European Central Bank (ECB) that it is done with rate hikes
– Political volatility affecting the dollar, especially headed into the US presidential election cycle
Fed Rate Cuts: The Primary Driver
The Federal Reserve went through an aggressive tightening cycle starting in early 2022, raising the federal funds rate to a peak of 5.25–5.50 percent. The main objective was to tame soaring inflation that reached a four-decade high. While this strategy produced the desired cooling effect on inflation and moderated consumer demand, it also raised concerns that prolonged restrictive policy could tip the US economy into a recession.
Recent economic indicators, ranging from consumer sentiment surveys to leading business activity indices, suggest growing risks of a slowdown. In response, market expectations have pivoted, with both investors and analysts now forecasting:
– Two to three rate cuts by the Fed over the next 12 months
– An initial 25-basis-point cut as early as September or November
– A terminal federal funds rate that settles around 4.25 percent by the end of 2025
This dovish shift in market outlook weakens the dollar against its major counterparts, creating favorable conditions for the euro to appreciate. Given the historical sensitivity of the EUR/USD rate to interest rate differentials, Fed easing typically fuels dollar softness, offering a window for the euro to gain ground.
Technical Analysis: Key Resistance and Support Levels
From a technical standpoint, the EUR/USD pair has displayed resilience, breaking above several key resistance levels in recent weeks. The next major hurdle lies at the 1.18 threshold, a level previously tested in mid-2023 but not convincingly broken.
Key technical observations include:
– Support near 1.1650 now acts as a cushion in case of a corrective pullback
– Immediate resistance lies at 1.1780, with a psychological target of 1.1800
– A weekly close above 1.18 would pave the way for the pair to challenge 1
Explore this further here: USD/JPY trading.