The euro fell in the European market on Monday against a basket of global currencies, continuing to move in negative territory for the second consecutive day against the US dollar, as hopes of narrowing the interest rate gap between Europe and the United States receded.
Recent inflation data in the eurozone raised the odds of the European Central Bank cutting European interest rates by about 25 basis points at the September meeting, while more aggressive comments from some Fed officials reduced the odds of a US interest rate cut by about 50 basis points later this month.
Price overview
Euro exchange rate today: The euro fell against the dollar by more than 0.3% to (1.1046 dollars), from the opening price of trading at (1.1083 dollars), and recorded the highest level at (1.1091 dollars).
The euro ended Friday’s trading down 0.25% against the dollar, in the first loss in the last three days, after recording earlier in trading a one-week high of $1.1155.
The euro rose 0.35% last week against the dollar, in the fifth weekly gain in a month and a half, thanks to hopes of cutting US interest rates at a large pace before the end of this year.
European interest
The European Central Bank cut interest rates by about 25 basis points last June, and is almost certain to ease them again by about 25 basis points in September thanks to the recent slowdown in price growth and inflation approaching its medium-term target.
However, policy decisions at subsequent meetings are likely to be more complicated as the eurozone economy enters a more precarious state, as indicated by talks with more than a dozen sources within the ECB.
American interest
New York Federal Reserve President John Williams said on Friday that it was time to cut interest rates, but he was not very enthusiastic about starting the cycle with a 50 basis point cut in significant.
With the economy now stabilizing and inflation trending to 2%, it is now appropriate to reduce the degree of restriction in the policy stance by reducing the target range for the federal funds rate, Williams said.
“The monetary policy stance can be moved to a more neutral framework over time depending on the evolution of data, forecasts, and risks to achieving our goals.
Following the above comments, according to CME Group’s FeedWatch: US interest rate cut prospects were down 50 basis points at the September meeting from 59% to 31%, and cutting prospects were up 25 basis points from 31% to 69%.
In order to reprice those possibilities, investors await later this week the release of key US inflation data for August.
The interest rate gap between Europe and the US is currently at 125 basis points in favor of US interest rates.With the current prospects around European and US interest rates, this gap is expected to remain unchanged in September.
It may shrink to 100 basis points if the Federal Reserve cuts interest rates by about 50 basis points, so if inflation data is worse than market expectations, the odds of a US interest rate cut will rise by about 50 basis points, which will support the rise in the exchange rate of the euro against the US dollar again.
Read also:Dollar Moves Higher After Aggressive Federal Comments
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