Euro US dollar (EUR/USD) firms following dovish Fed remarks
The euro US Dollar (EUR/USD) exchange rate is edging higher this morning amid increase Federal Reserve interest rate cut speculations.
At the time of writing the EUR/USD exchange rate is trading at $1.0759, up approximately 0.2% from this morning’s opening rate.
Euro (EUR) stymied by services sector slowdown
The euro (EUR) is mixed this morning despite confirmation of a slight softening in both the German and Eurozone’s vital services sectors.
Germany’s finalised services PMI dipped slightly below market projections in June, dipping to 53.1, just below expectations of 53.5.
Elsewhere, the Euro bloc’s services sector expanded for a fifth successive month, though slightly lost momentum last month. The finalised services PMI softened less than forecast in June, modestly slipping from May’s reading of 53.2 to 52.8, though beating forecasts of a more significant slowdown to 52.6.
Economists at the Hamburg Commercial Bank (HCOB) noted:
‘Considering the upward revision versus the preliminary flash PMI figures, the chances are good that service providers will remain the decisive force keeping overall economic growth in positive territory over the rest of the year.’
However, with the index falling to a three-month low and confirming the first decline in services demand since February, EUR’s upside potential may be limited.
Meanwhile, EUR investors may remain reluctant to place any aggressive bets on the common currency ahead of France’s second round of legislative elections, due to take place next week. Political jitters as the strength of France’s far-right National Rally (RN) party maintains its footing could weigh on the euro.
US dollar (USD) falters amid ramped up rate cut bets
The US dollar (USD) is struggling to attract investor support this morning in the wake of Federal Reserve Chair Jerome Powell’s latest remarks.
Speaking at a European Central Bank (ECB) conference in Portugal yesterday, Powell noted that the last two months of inflationary data does ‘suggest that we are getting back on a disinflationary path’.
The Fed Chair then added that the central bank wants to see further evidence of disinflation in order to confirm its path forwards regarding underlying US inflation.
Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank, said:
‘Federal Reserve (Fed) President Jerome Powell said that the Fed has made ‘quite a bit of progress’ on inflation and investors didn’t need more to jump back on the back of a bull.’
With the CME FedWatch Tool now pricing in a 60% chance of a September interest rate cut, expectations of Fed monetary loosening in the third quarter could keep USD on the backfoot ahead of this afternoon’s high-impact US releases.
Euro US dollar exchange rate forecast: Fed minutes in focus
Looking ahead, the publication of the Federal Reserve Open Committee’s (FOMC) latest meeting minutes is due for release this evening. Any dovish remarks are likely to fuel Fed rate cut bets, which may hamper USD exchange rates later on.
Looking to the Eurozone, the latest German factory orders are due for release tomorrow. Economists expect to see a slight rebound, with 0.5% growth in May which could lift EUR against its rivals.
