The EUR/USD pair is attempting to recover from recent losses, trading near 1.1090 during Monday’s Asian session. However, the pair’s upside potential may be constrained as recent eurozone inflation data have reinforced expectations for a rate cut by the European Central Bank (ECB) in its upcoming policy meeting on Thursday.
With headline inflation approaching 2% and long-term inflation forecasts stable around this level, the ECB appears well-positioned to ease its monetary policy further. Additionally, last week’s mixed Gross Domestic Product (GDP) data from the Eurozone has bolstered expectations for a potential rate cut.
In the US, economic data released on Friday has created uncertainty regarding the Federal Reserve’s (Fed) plans for an aggressive interest rate cut at its September meeting. The US Bureau of Labor Statistics (BLS) reported a 142,000 increase in Nonfarm Payrolls (NFP) for August, falling short of the 160,000 forecast but improving from July’s downwardly revised figure of 89,000. The Unemployment Rate dropped to 4.2%, as expected, from 4.3% the previous month.
The CME FedWatch Tool indicates that markets are anticipating at least a 25 basis point (bps) rate cut by the Fed in September. However, the probability of a 50 bps cut has slightly decreased to 29.0%, down from 30.0% a week ago.
Federal Reserve Bank of Chicago President Austan Goolsbee stated on Friday that Fed officials are aligning with the market sentiment that a policy rate adjustment is imminent. According to FXStreet’s FedTracker, Goolsbee’s comments were rated as dovish, reflecting a cautious stance from the Fed.
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