Euro Edges Lower; Fed Minutes Weigh on Sentiment
The EUR/USD pair edged lower during Asian trading on Thursday (August 20), hovering around the 1.1675 level. The euro underwent a correction against the US dollar after posting sharp gains in the previous session; however, the downside remains limited as softer US economic data continues to weigh on the greenback.
Pressure on the euro emerged after the latest Federal Reserve meeting revealed that some officials still see a need for interest rate hikes if inflation does not subside. At the July meeting, the Fed maintained its benchmark interest rate in the 3.50%–3.75% range, though several officials assessed that further action might be required to bring inflation back to target.
Nevertheless, market expectations for Fed rate hikes have begun to decline. Signs of cooling US inflation have led the market to estimate only a 32.7% probability of a rate hike at the next meeting—down from 47% the previous month—according to the CME FedWatch Tool.
Conversely, the market is speculating that the European Central Bank (ECB) will continue its rate-hiking cycle. The ECB Watch Tool indicates a 90%–94% probability of a 25-basis-point hike to 2.50% at the September 9 meeting.
Analysts at Societe Generale believe that the Eurozone's improving growth outlook is supporting a shift in the interest rate differential between Europe and the United States. They note that interest rate pricing, initially driven by inflation, is now being reinforced by expectations of more solid economic growth.
Newsmaker Analysis: Current EUR/USD movement reflects a limited correction rather than significant downward pressure. As long as expectations for Fed rate hikes continue to fall and the probability of an ECB hike remains high, the euro retains a foundation to hold its ground at higher levels. However, the 1.1700 level serves as a psychological resistance point that must be breached for bullish momentum to continue. Failing that, EUR/USD could move sideways within the 1.1600–1.1700 range while awaiting further inflation data and signals from central banks. (asd)
Source: Newsmaker.id
