The EUR/USD pair has risen sharply above 1.1150 as investors anticipate the Federal Reserve (Fed) to continue its aggressive policy-easing cycle. The Fed projects interest rates to decline to 4.4% by the end of the year. European Central Bank (ECB) Nagel mentioned that inflation is still higher than what the ECB would prefer, adding to the uncertainty surrounding the Euro’s outlook.
The outlook of the Euro is uncertain due to a debate among ECB policymakers regarding the interest rate path. ECB members Peter Kazimir and Joachim Nagel want more evidence to ensure that inflation returns to desired levels. Conversely, François Villeroy de Galhau believes more rate cuts are necessary to prevent inflation from dropping too low. The market expects one more interest rate cut from the ECB this year.
The EUR/USD pair climbs above 1.1150 in the European session, with the US Dollar weakening after the Fed’s interest rate cut and expectations of further easing. Fed Chair Jerome Powell stated that the US is not at risk of a recession or slowdown and expressed confidence in inflation progress towards the bank’s target. The Fed is expected to continue its aggressive policy-easing compared to other central banks.
Technically, the EUR/USD pair has recovered above 1.1150 after a decline near the 20-day Exponential Moving Average (EMA). The currency pair showed bullish signs after retesting the Rising Channel chart pattern breakout near 1.1000. The Relative Strength Index (RSI) near 60.00 suggests a potential bullish momentum ahead, with key resistance at 1.1200 and support at 1.1000.
At its eight scheduled meetings, the Fed releases a Summary of Economic Projections, or ‘dot plot’, indicating members’ forecasts for the federal funds rate in the future. Changes in these forecasts can impact the US Dollar. The interest rate projections influence market expectations regarding the terminal rate and potential policy shifts. The last release showed a decline to 3.4% from 4.1%.
In conclusion, the EUR/USD pair has rallied above 1.1150 as investors anticipate further policy easing from the Fed. ECB policymakers are divided over the interest rate path due to mixed views on inflation. The Euro’s outlook remains uncertain, with the market expecting one more rate cut from the ECB this year. Technical analysis suggests a bullish momentum for EUR/USD, with key resistance at 1.1200 and support at 1.1000. The Fed’s interest rate projections play a crucial role in shaping market expectations and influencing the US Dollar.
