Euro-dollar gains momentum, thanks to the Fed effect

EUR/USD Pair Rises Following Powell’s Fed Comments

This morning, the EUR/USD pair is trading higher after a less aggressive tone than expected from Powell’s words in yesterday’s press conference.

The Euro continues to gain ground against the Dollar due to a widespread positive sentiment in the market supporting risk-sensitive currencies.
The Bloomberg Dollar Index has fallen for the second day, reflecting the decrease in US yields.
US Treasury yields remained mostly unchanged in Asian trading, with the 10-year benchmark yield at 4.62%.

Fed’s Impact on Currency Markets

The recent downward pressure on the US Dollar has encouraged the EUR/USD pair to reduce losses and surpass the 1.0700 barrier.
Currently, the EUR/USD is trading at 1.0725, reaching a peak of 1.0731 during the Fed’s press conference.

The Dollar’s bearish movement accelerated after the Fed’s decision to keep interest rates unchanged at 5.25%-5.50%, as widely expected, following Wednesday’s two-day meeting.

Fed’s Forward Guidance

The Fed remained consistent with the Federal Funds Target Rate (FFTR) range and aimed to lower financing costs while expressing concerns about inflation and economic balance.
The central bank also announced its intention to slow down the pace of balance sheet reduction, contrary to previous warnings.

President Jerome Powell stated that a rate cut would not be appropriate until the Committee is more confident that inflation is returning to the 2% target.
Powell emphasized that current policy measures will be effective in containing inflation over time, suggesting that the next policy adjustment is unlikely to involve a rate hike.

Market Expectations and Outlook

In the long term, the weakness of the US Dollar is expected to be short-lived due to delayed expectations of a potential interest rate cut by the Federal Reserve by the end of the year.
Market indicators suggest a decreasing probability of a 25-basis-point rate cut at the September 18 meeting.

Despite relatively modest economic fundamentals in the Eurozone, combined with the resilience of the US economy, expectations for a stronger Dollar in the medium term have been reinforced, especially considering the increasing likelihood of an ECB rate cut before the Fed.

Focus on Yen and Investor Sentiment

Investor focus remains high on the Yen, which depreciated by 1.1% after Wednesday’s rally in New York.
The ongoing decline suggests skepticism among investors about Japanese authorities’ ability to prevent the currency’s depreciation given the significant interest rate differential with the US.
Japanese official Masato Kanda declined to comment on whether authorities had intervened.