EUR/USD Hits Near 1.1800 as Market Eyes Fed Rate Cut, ECB Holds Steady

The EUR/USD pair is riding a three-day winning streak, hovering around 1.1780 during Tuesday’s Asian session. The Euro benefits as the US Dollar (USD) struggles amid expectations of a larger Federal Reserve rate cut in September, with markets now pricing in a 10% chance of a 50-basis-point reduction.

The US Dollar remains under pressure following a weaker-than-expected August jobs report, which has strengthened the likelihood of a rate cut by the US Federal Reserve. According to the CME FedWatch tool, the probability of a 25-basis-point (bps) cut in September is now at 90%, a slight increase from last week. In addition, a revision of US Nonfarm Payrolls data will be closely watched later in the day for more insights into the job market’s health.

Investors are preparing for a significant week of US economic data, with the August Producer Price Index (PPI) scheduled for release on Wednesday. The expected rise of 3.3% in the headline PPI and a 3.5% increase in the core PPI will likely impact the Fed’s interest rate outlook. The focus will shift further to Thursday’s Consumer Price Index (CPI) report, which could influence future Fed policy.

In the Eurozone, political uncertainty is adding pressure. France is grappling with a fresh political crisis after Prime Minister François Bayrou lost a confidence vote in the National Assembly. President Emmanuel Macron is expected to name a new prime minister soon. Despite the political turmoil, traders are anticipating the European Central Bank (ECB) will leave interest rates unchanged on Thursday, supported by steady growth and inflation near target levels. Market participants will be looking for any clues on the ECB’s stance for the remainder of the year.

With these factors in play, EUR/USD is positioned for potential further gains, especially if the ECB holds firm and the Fed’s stance remains dovish, creating a favorable environment for the Euro.

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