Hopes of narrowing the interest rate gap between Europe and the United States grow
Markets await comments from central bankers in Jackson Hole
The euro rose in the European market on Monday against a basket of global currencies, extending its gains for the second consecutive day against the US dollar, hitting the highest level in 2024, specifically the highest level in eight months, amid bullish expectations based on growing hopes of narrowing the interest rate gap between Europe and the United States.
Global interest prospects indicate that the European Central Bank will cut interest rates by about 25 basis points before the end of the year, while the Federal Reserve will cut interest rates by about 100 basis points.
This week, global markets await the Jackson Hole Economic Forum, where most of the world’s central bankers will speak, which is expected to provide more clues about this year’s rate cuts.
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- Euro exchange rate today: The euro rose against the dollar by about 0.25% to ($1.1050), the highest since December 2023, from the opening price of trading at ($1.1025), and recorded a low of ($1.1023).
- The euro ended Friday’s trading up 0.5%, the fourth gain in the last five days, thanks to a succession of weak economic data in the United States.The euro gained 1.05% last week against the dollar, the third consecutive weekly gain, on hopes of a narrowing interest rate gap between Europe and the United States.Traders almost completely price the odds of the ECB cutting rates by another 25 basis points before the end of this year.
- The market is waiting for more data that shows the development of growth and inflation levels in the euro area during the coming period.
- On Thursday, purchasing managers’ indices for Europe’s key sectors were released in August, a sign of waning economic momentum in the eurozone, which will boost the prospect of a deeper cut in European interest rates.
- The market awaits the comments of ECB President Christine Lagarde at the Jackson Hole Economic Forum.
- Traders almost completely price the odds that the Federal Reserve will cut interest rates by about 100 basis points before the end of this year.
- The market awaits the release of the minutes of the last meeting of the Federal Reserve, due on Wednesday, where it is expected to include more evidence about possible cuts in US interest rates.
- Federal Reserve Chairman Jerome Powell will speak at the Jackson Hole Forum on Friday.Interest rate gapThe interest rate gap between Europe and the United States is currently at 125 basis points in favor of US interest rates.With the current prospects around European and US interest rates, the gap is expected to narrow to 50 basis points before the end of the year, which is in favor of the appreciation of the euro exchange rate against the dollar.
Euro Forecast
- Sean Osborne, an analyst at Scotia Bank, said: “The EUR/USD pair is close to surpassing the 1.1050 level, as the overall trend remains bullish for the European currency as shown in the daily chart.
- The daily chart shows that the euro has maintained a steady uptrend since June, and short, medium and long-term trend indicators remain bullish.
- Societe Generale strategists said in Friday’s review of the EUR/USD charts: The EUR/USD pair has recently broken through its symmetrical triangle, showing the possibility of a growth towards 1.1140 and a July 2023 high of 1.1275.They added: Last week’s low of 1.0880 is now a key support.
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