- Amidst a divided Federal Reserve on the size of US interest rate cuts in September, the EUR/USD exchange rate moved towards the support level of 1.0936, its lowest in seven weeks.
- Further supporting the US dollar's gains were the minutes of the Federal Open Market Committee meeting, which revealed that Fed officials were uncertain about the extent of US interest rate cuts at their September meeting but opted for a half-point cut to balance inflation concerns with Labor market concerns.
Ultimately, only Governor Bowman opposed a 50-basis-point cut, preferring a 25-basis-point cut instead - marking the first dissent by a Fed governor on US interest rates since 2005. Moreover, The Fed indicated that the 50-basis-point cut should not be interpreted as evidence of a less favourable economic outlook or as a signal that the pace of policy easing would be faster than participants' assessments of the appropriate path.
Additionally, almost all members expressed confidence that inflation is moving sustainably towards 2%. The Federal Reserve had lowered the target range for the federal funds rate by 50 basis points to 4.75%-5% in September 2024, the first cut in borrowing costs since March 2020, and expects 100 basis points of easing by the end of the year.
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Prior to that, the yield on the 10-year German bond declined from a 5-week high. According to reliable trading platforms, the yield on the 10-year German bond declined to 2.235% from a five-week high, as investors await the European Central Bank's monetary policy meeting next week, where another interest rate cut is widely expected. Many European Central Bank policymakers are pushing for another cut, driven by the economic slowdown and rapidly slowing inflation, although some remain cautious. After two cuts this year, financial markets expect the deposit rate to be cut to 3.5% on October 17, with further cuts possible. Furthermore, European Central Bank President Francois Villeroy de Galhau and Bank of Greece Governor Yannis Stournaras support successive cuts. Meanwhile, European Central Bank President Christine Lagarde's comments have reinforced these expectations.
However, Belgium’s Pierre Wunsch remains undecided, citing concerns over persistent domestic inflation and rising energy costs linked to tensions in the Middle East. Also, financial markets are expecting the deposit rate to fall to 3% by the end of the year.
According to stock trading platforms, the German DAX index was largely unchanged. The DAX index was little changed at 19,070 on Wednesday, tracking a generally cautious sentiment among its European peers as the wave of stimulus coming from China faded and traders continued to await more details about the measures announced by the Chinese authorities. At the same time, investors are refraining from making significant bets ahead of the FOMC meeting minutes and the US Consumer Price Index report scheduled for today, which could provide more clarity on the Federal Reserve's next moves.
In Europe, the European Central Bank is expected to deliver another 25bp cut in borrowing costs next week. On the economic data front, exports from Germany unexpectedly increased in August while imports fell more than expected. Bayer (-5.1%) was the worst performer, followed by Rheinmetall (-1.5%). Continental, on the other hand, rose more than 5% after the company forecast improved profitability in the third quarter.
EUR/USD Technical analysis and forecast:
Based on the daily chart attached, as mentioned earlier, the downward movement of the EUR/USD pair will remain the strongest as long as it remains below the 1.1000 support level. According to performance and ongoing pressures, attention will be directed towards the 1.0880 support level, which may in turn push technical indicators towards oversold levels. From below this level, buying the pair may be considered, but without risk. Conversely, and on the same timeframe, the EUR/USD pair will not return to its upward path without crossing the 1.1120 resistance again.
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