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Euro-dollar trades flat after bumper Fed rate cut

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The EURUSD pair is trading flat in the early European session on Thursday after the first cut in U.S. interest rates in four years. The major pair initially edged higher to monthly highs of 1.1189 after a bumper 50 basis points rate cut by the Federal Reserve at its September meeting and later eased back to near 1.1120.

The Federal Open Market Committee (FOMC) started its easing cycle, lowering the Fed funds target range by 50 bps to 4.75-5.00% on Wednesday. However, the Fed’s forward guidance didn’t seem to be as dovish as expected, which helped limit the US Dollar’s 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 seven 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 Harmonised 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 held steady at 2.8% YoY in August, matching the expectation.

European Central Bank 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, 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.

(Source: OANDA)