EUR/USD declines below 1.0700 as Fed Bowman pushes rate-cut hopes to 2025
- EUR/USD slips below 1.0700 as the Fed maintains hawkish guidance on interest rates.
- FedÂ’s Bowman sees no rate cuts this year.
- Investors will focus on the US core PCE and preliminary inflation data for the major economies of the Eurozone this week.
EUR/USD declines below the round-level support of 1.0700 in Wednesday’s American session. The major currency pair remains on the backfoot as the Euro’s near-term outlook weakens amid uncertainty over European Union (EU) legislative elections and growing speculation that the European Central Bank (ECB) could deliver subsequent rate cuts.
Fears over Eurozone elections intensified after French President Emmanuel Macron called for a snap election when his party suffered defeat in preliminary results from Marine Le PenÂ’s far-right National Rally (RN). The Euro could face more pressure if the shared continent sees a major policy shift.
Meanwhile, expectations for the ECB to deliver back-to-back rate cuts improve as the German economic outlook appears to be worsening due to weak demand prospects. Data showed on Monday that the German IFO Expectations index unexpectedly dropped to 89.0 from the estimates of 91.0 and the former release of 90.3 (downwardly revised from 90.4). On the data release, IFO President Clemens Fuest said, “The German economy is having difficulty overcoming stagnation.”
This week, investors will focus on preliminary June inflation data for Spain, France, and Italy, which will be published on Friday.Â
Daily digest market movers: EUR/USD weakens as US Dollar rises further
- EUR/USD comes under pressure as the US Dollar (USD) advances due to hawkish guidance on interest rates by Federal Reserve (Fed) policymakers, who continue to argue in favor of maintaining the current interest rate framework as they want to see a decline in inflation for months before considering rate cuts. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, jumps to a crucial resistance of 106.00. The United States (US) inflation declined more than expected in May, however, officials expect that a one-time decline in price pressures will be insufficient to make rate cuts appropriate.
- On Tuesday, Fed Governor Michelle Bowman delivered hawkish guidance on interest rates. Bowman said they are not at a point where rate cuts become appropriate. She pushed back expectations of rate cuts to 2025 and warned of more hikes if disinflation appears to stall or reverse.
- Contrary to the FedÂ’s hawkish outlook on interest rates, investors expect two rate cuts this year, and the policy-easing process will begin in the September meeting. For more cues on the interest rate outlook, investors await the core Personal Consumption Expenditures Price Index (PCE) data for May, which will be published on Friday.
- According to the estimates, the PCE inflation report will show that price pressures grew at a slower pace of 0.1% month-on-month from the prior release of 0.2%. Annually, the underlying inflation is expected to rise modestly by 2.6% from 2.8% in April. Soft inflation data would boost expectations of the Fed reducing interest rates in September, while hotter-than-expected figures would weaken them.
Euro Price Today:
Euro PRICE Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the New Zealand Dollar.
| Â | EUR | USD | GBP | JPY | CAD | AUD | NZD | CHF |
|---|---|---|---|---|---|---|---|---|
| EUR | Â | -0.41% | -0.01% | 0.05% | -0.15% | -0.36% | 0.30% | -0.16% |
| USD | 0.41% | Â | 0.40% | 0.48% | 0.28% | 0.03% | 0.69% | 0.26% |
| GBP | 0.00% | -0.40% | Â | 0.08% | -0.14% | -0.36% | 0.32% | -0.14% |
| JPY | -0.05% | -0.48% | -0.08% | Â | -0.23% | -0.47% | 0.21% | -0.24% |
| CAD | 0.15% | -0.28% | 0.14% | 0.23% | Â | -0.28% | 0.43% | -0.03% |
| AUD | 0.36% | -0.03% | 0.36% | 0.47% | 0.28% | Â | 0.66% | 0.22% |
| NZD | -0.30% | -0.69% | -0.32% | -0.21% | -0.43% | -0.66% | Â | -0.44% |
| CHF | 0.16% | -0.26% | 0.14% | 0.24% | 0.03% | -0.22% | 0.44% | Â |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
Technical Analysis: EUR/USD auctions below 50-day EMA
EUR/USD falls slightly below the crucial support of 1.0700. The major currency pair faces selling pressure near the downward-sloping border of a Symmetrical Triangle in the daily chart near 1.0750, which is plotted from 28 December 2023 high around 1.1140. The pair trades below the 50-day Exponential Moving Average (EMA), which indicates that the short-term outlook is bearish.
The 14-period Relative Strength Index (RSI) hovers near 40.00. A bearish momentum would trigger if the oscillator slips below this level.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
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