Euro-Dollar edged higher to near the round-level resistance of 1.0800 in European trading on Friday, with the performance of the currency pair remaining weak in the past few days. EURUSD failed to discover significant buying interest, even though the Fed has leaned towards pivoting to policy normalization in September.
Federal Reserve’s Dovish Stance
On Wednesday, the Federal Reserve kept interest rates unchanged in the 5.25-5.50% range but delivered dovish guidance, as expected. Fed Chair Jerome Powell said, “if we were to see inflation moving down more or less in line with expectations, growth remains reasonably strong, and the labor market remains consistent with current conditions, then I think a rate cut could be on the table at the September meeting,” according to a Reuters report.
Eurozone’s Economic Indicators
On the other side of the Atlantic, the Euro struggles to recover despite the hotter-than-expected Eurozone preliminary Harmonised Index of Consumer Prices (HICP) in July. The headline HICP unexpectedly rose to 2.6%, while economists expected the inflation figure to decelerate to 2.4% from June’s reading of 2.5%. The core HICP, which strips off volatile items such as food, energy, alcohol, and tobacco, grew steadily 2.9% against expectations of 2.8%.
Additionally, the continent’s preliminary Gross Domestic Product (GDP) growth in the second quarter was higher than expected. The Eurozone economy expanded steadily by 0.3%, while investors anticipated a slower growth rate of 0.2%. A scenario of stubborn inflation and steady growth is unfavorable for market expectations for interest rate cuts.
Financial markets currently expect the European Central Bank to cut its key borrowing rates twice more this year. A few ECB policymakers are comfortable with market expectations, while others refrain from committing to a specific rate-cut path.
EURUSD chart by TradingView
(Source: OANDA)
