19 Sep 2024
EUR/USD flat lines above 1.1100 after Fed's bumper rate cut
The EUR/USD pair trades flat during the early European session on Thursday. The major pair initially edges higher to monthly highs of 1.1189 after a large rate cut by the Federal Reserve (Fed) at its September meeting and eases back to near 1.1120.
The Federal Open Market Committee (FOMC) started its easing cycle, lowering the Fed funds target range by 50 basis points (bps) to 4.75%-5.00% on Wednesday. However, the Fed's forward guidance didn't seem to be as dovish as expected, which help limit the US Dollar’s (USD) losses.
Fed Chair Jerome Powell stated that “it feels to me that neutral rate is probably significantly higher than it was pre-pandemic”. The median long-term interest rate shifted to 2.9% from 2.8%, with 7 participants now seeing the long-term rate at or above 3.25%. The median projection for unemployment by the end of 2024 was revised to 4.4% from the 4.0% projection in June. Powell reiterated at the press conference that employment markets have now properly normalised, and the additional slowdown is not welcomed by policymakers.
Data released by Eurostat showed that the Eurozone Harmonized Index of Consumer Prices (HICP) rose 2.2% YoY in August, in line with the expectation and the previous reading of 2.2%. Meanwhile, the core HICP inflation holds steady at 2.8% YoY in August, matching the expectation. The European Central Bank (ECB) policymaker Joachim Nagel said on Wednesday that Eurozone inflation is still not as low as the ECB would like, so interest rates need to remain sufficiently high to resolve price pressures.
Looking ahead, the ECB Executive Board Member Isabel Schnabel is set to speak later in the day. On the US docket, the US weekly Initial Jobless Claims, the Philly Fed Manufacturing Index and Existing Home Sales will be published.
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