In a week’s time, Federal Reserve officials will convene for their September meeting and will most likely lower policy rates for the first time in 2025 by 25bps. Today, ECB policymakers will likewise convene but it is rather unlikely that they will vote to lower rates, but are rather expected to keep them intact for the second consecutive session.
The ECB has front runned the Federal Reserve in terms of policy easing over the past year, slashing 200bps off its key interest rates as inflation softened swiftly and economic growth slowed drastically, creating a net interest differential that hurt the Euro. However, as political uncertainty rose at the start of 2025 and a flux of economic developments rolled in, the greenback found itself on the back foot, devaluating substantially and the Euro managed to capitalize on its weakness, with the EURUSD climbing as high as $1.18, capturing a 4 year high.
The main refinancing rate across Euro Area is currently set at the 2.15% level by the central bank and the deposit rate is set at 2% and since money markets foresee another pause at these levels (and no additional easing onwards for the matter), participants are expected to shift their attention towards the board’s macroeconomic projections alongside the speech of President Lagarde.
Thus, as inflation in the US stays relatively neutralized near the 3% and the Fed starts cutting rates aggressively, leading to further devaluation of the dollar, the net interest differential discrepancy gap between the USD and the EUR will narrow and could therefore potentially fuel inflows towards the Euro, lifting it higher.
Technical Analysis
EURUSD Chart – A weaker dollar could propel the EURUSD to June of 2021 highs
Resistance: 1.1810 (R1), 1.1900 (R2), 1.2000 (R3)
Support: 1.1580 (S1), 1.1510 (S2), 1.1400 (S3)