EURUSD Fundamental Analysis – 13-August-2024

The Euro has been trading around $1.093 (EUR/USD), slightly below last week’s high of $1.1, as investors closely watch the European Central Bank’s (ECB) future monetary policy decisions.

The currency’s movement reflects the market’s anticipation of changes in the ECB’s approach to managing the economy.

Economists Predict Quicker Rate Cuts by ECB

Recent forecasts suggest that the ECB may begin cutting its deposit rate more rapidly than initially expected, with reductions occurring every quarter until the end of next year. This would end the current cycle of easing monetary policy sooner.

Economists expect the benchmark interest rate to drop to 2.25% by December 2025, following six cuts of 0.25 percentage points each. This is a quicker timeline than earlier predictions, which had anticipated this rate by mid-2026.

ECB’s Strategy to Combat Inflation

The ECB started lowering borrowing costs in June to bring inflation back to its target of 2%. While ECB officials have hinted that more rate cuts could be on the horizon, they have been cautious in committing to a specific schedule due to the unpredictable economic environment.

The uncertainty in the Eurozone’s economic outlook makes it challenging to predict the exact timing of further policy changes.

Economic Slowdown in the Eurozone Raises Concerns

Recent economic data paints a concerning picture for the Eurozone, particularly with signs of stagnation in the private sector and sluggish growth in Germany, the region’s largest economy.

These developments have led economists to revise their growth projections downward for the entire Euro Area, adding pressure on the ECB to act.

• Also read: USDCHF Fundamental Analysis – 12-August-2024

US Monetary Policy in Focus

As the ECB navigates its challenges, investors are also closely monitoring the US Federal Reserve’s next moves. There is speculation that the Fed might cut interest rates by 50 basis points in September, driven by consumer price trends. This potential rate cut in the US could have significant implications for global financial markets, including the Euro.

In summary, the Euro is experiencing volatility as investors weigh the potential impacts of ECB and Fed monetary policies. With economic uncertainties in Europe and the US, the coming months will be critical for understanding how these decisions will shape the financial landscape.

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