The EUR/USD outlook suggests optimism, buoyed by a weakened dollar following Chairman Powell’s cautious remarks. Concurrently, attention is on the upcoming US retail sales report and the impending European Central Bank (ECB) policy meeting.
Federal Reserve Chair Jerome Powell’s recent statements indicated increased confidence in a sustained reduction of inflationary pressures, potentially bringing inflation closer to the Fed’s 2% target. This newfound confidence is paving the way for anticipated rate cuts, with markets now fully pricing in a decrease in September. Investor expectations suggest a cumulative 68 basis points cut by year-end.
However, this outlook remains fluid pending further economic data leading up to September. Focus now shifts to the US retail sales report, which may reveal a 0.3% monthly decline, signaling potential weakening in consumer spending and further justifying future rate cuts.
Meanwhile, investors are gearing up for Thursday’s ECB policy meeting, where interest rates are expected to remain unchanged. Attention will center on ECB President Christine Lagarde’s commentary for indications regarding future monetary policy adjustments. Despite recent easing in inflation, concerns persist over persistent high services inflation. A recent Reuters poll indicates expectations for rate cuts in September and possibly December, though the outcome could hinge on evolving economic conditions.
