EURUSD Fundamental Analysis – 12-September-2024

The euro has dropped below $1.102 (EUR/USD), marking its lowest point in four weeks. This decline comes as the European Central Bank (ECB) is expected to lower interest rates by 25 basis points in its meeting on Thursday.

This potential rate cut is in response to several economic indicators showing a slowdown in Europe.

Signs of Easing Inflation in Europe

One key factor behind the ECB’s decision is the reduction in inflation, which eased to 2.2% in August. A cooling inflation rate signals that prices are stabilizing, reducing the need for higher interest rates to control rising costs.

Wage Growth Slows Down

Another important reason for the expected rate cut is the slower pace of wage growth. Wages, which influence consumer spending and overall economic health, have not been growing as quickly as before. This slowdown means less pressure on the ECB to keep rates high.

Revised GDP Figures Add to Pressure

Adding to the ECB’s concerns is the revision of the eurozone’s second-quarter GDP growth, which was adjusted to just 0.2%. A weaker-than-expected GDP highlights the need for supportive monetary policies to boost economic activity.

Stronger Dollar Puts Extra Pressure on Euro

The strength of the US dollar also influences the euro’s decline. The dollar strengthened recently after US core inflation increased slightly than expected.

This surprise in inflation could limit the Federal Reserve’s ability to reduce interest rates as aggressively as it wants, even though the labor market shows signs of cooling.

• Also read: USD/MXN Analysis – 9-September-2024

Conclusion: Euro Facing Multiple Challenges

In summary, several pressures have driven the euro to a four-week low. Lower inflation, slower wage growth, weaker GDP numbers, and a stronger US dollar are all contributing factors.

As the European Central Bank prepares for its rate decision, it must carefully balance these factors to support economic recovery in the eurozone.

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