Daily digest market movers: EUR/USD trades sideways while US Dollar struggles for firm footing
- EUR/USD consolidates slightly below 1.1200 as the US Dollar (USD) struggles to gain ground after posting a fresh year-to-date low. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, hovers below 101.00. The Greenback is expected to remain sideways as investors focus on the United States (US) core Personal Consumption Expenditure Price Index (PCE) data for July, which will be published on Friday.
- The Federal Reserve’s (Fed) preferred inflation measure could provide cues about the likely pace at which the central bank will cut interest rates in September. The annual core PCE is estimated to have accelerated to 2.7% from the prior release of 2.6%, with monthly figures seen growing steadily by 0.2%.
- According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data shows that the probability of a 50-basis points (bps) interest rate reduction in September is 28.5%, while the rest points to a 25-bps rate cut, indicating that the Fed return to policy-normalization is certain.
- Meanwhile, most Fed officials also see rate cuts in September as appropriate, given that the central bank is now more worried about emerging risks to the job market. San Francisco Fed Bank President Mary Daly said that "the time is upon us" to cut interest rates, in an interview with Bloomberg on Monday. When asked about the likely size of interest rate cuts, Daily said that she expects a 25-bps interest rate reduction is most likely, however, she left doors open for a 50-bps rate cut if the labor market deteriorates.
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