The EUR/USD pair is hovering around 1.1700 in Monday’s Asian session, easing slightly after a nearly 1% surge in the previous session that took the pair to its highest level in four weeks. Despite the current pullback, downside potential appears limited as the US dollar continues to weaken, weighed down by increasing expectations of a Federal Reserve rate cut in September.
This shift in sentiment was triggered by Fed Chair Jerome Powell’s remarks at the Jackson Hole symposium on Friday. Powell acknowledged that while inflation remains a concern, the risks to the labor market are rising. He also emphasized that policy decisions are not set in stone, and the Fed might not need to tighten further given the uncertain estimates around maximum employment.
Markets price in september rate cut following dovish Fed tone
According to the CME FedWatch tool, traders now see an 85% chance of a 25 basis-point rate cut in September—up from 75% before Powell’s Jackson Hole speech. This reinforces the narrative that the Fed is pivoting toward a more accommodative stance amid signs of a slowing labor market.
Focus now shifts to Friday’s release of Q2 US GDP (annualized) and the July Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation measure. These data points are expected to play a key role in solidifying or challenging the current market consensus on a September rate cut.
ECB policymakers signal cautious approach to further easing
On the eurozone front, European Central Bank (ECB) officials also took the stage at Jackson Hole with a more measured tone. Governing Council member Joachim Nagel said the ECB would require a significant shift in the economic outlook to consider additional rate cuts.
Separately, Martins Kazaks, also an ECB Governing Council member, told Bloomberg that the central bank is now entering a new phase of policy where it can focus on monitoring economic developments rather than actively steering the economy through intervention.
With both central banks signaling increased reliance on incoming data, the EUR/USD pair is likely to remain sensitive to macroeconomic surprises this week, particularly from the US side. However, in the near term, the euro could remain supported as long as the dollar stays on the back foot.
