The EUR/USD pair has faced some downward pressure, slipping to around 1.1595 during Friday’s Asian session, reflecting a 0.10% decline on the day. This softening of the Euro comes as the US Dollar (USD) shows strength ahead of key events, most notably the upcoming speech by Federal Reserve Chair Jerome Powell at the Jackson Hole Symposium. As traders adjust their expectations regarding the Fed’s policy outlook, all eyes are now on Powell’s remarks, which could offer crucial guidance on the near-term direction for interest rates.
Federal Reserve’s Rate Cut Expectations and Jackson Hole Symposium
The US Dollar’s recent rebound can be attributed to renewed confidence in the Federal Reserve’s caution toward aggressive rate cuts. While the disappointing US July jobs report initially fueled hopes for a rate reduction in the Fed’s September meeting, hawkish commentary from Fed officials and inflationary concerns have tempered those expectations. Currently, the markets are pricing in a 75% chance of a 25 basis point rate cut next month, a decrease from 92% just a week ago, according to the CME FedWatch tool.
Fed Chair Jerome Powell’s speech at Jackson Hole is set to be a major catalyst, with traders eager for clues on whether the US central bank will adopt a more dovish stance in response to soft labor data or hold firm given the inflationary risks. A more dovish tone could weaken the USD, potentially creating an opportunity for the EUR/USD pair to regain some ground.
Eurozone Economic Data Offers Mixed Signals
In contrast, the Eurozone’s economic data shows signs of improvement, albeit with some mixed results. The flash HCOB Manufacturing PMI for August revealed an increase to 50.5, surpassing expectations of 49.5 and indicating that business activity is picking up. However, the Services PMI slightly eased to 50.7, down from 51.0 in July, although it remained above expectations of 50.8. These figures reflect a cautiously optimistic outlook for the Eurozone, but uncertainties about future growth persist.
ECB’s Stance and Future Outlook
As for the European Central Bank (ECB), policymakers are expected to maintain the deposit rate at 2.0% in their September meeting, signaling a pause after a yearlong cycle of rate hikes. While the ECB has made significant strides in addressing inflation, it remains cautious about further tightening, particularly in light of the mixed economic data and global uncertainties.
Key Levels to Watch in EUR/USD
For EUR/USD, the immediate focus is on whether the pair can hold above the critical support level of 1.1600. A break below this level could open the door for further declines towards 1.1550 and beyond. Conversely, any dovish remarks from Fed Chair Jerome Powell could reverse the recent USD strength and push the pair back toward the 1.1700 region.
Traders will also keep a close eye on US and Eurozone PMI data, as well as inflation figures, which will continue to shape the outlook for both the Euro and the US Dollar in the coming weeks. As the market continues to digest these factors, EUR/USD could remain in a holding pattern, awaiting further signals from the Fed and ECB.
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