Euro Continues Upward Trend Amid Fed Rate Cut Speculations
The euro, the single currency of the 20 European Union member countries, has surged sharply against the dollar, maintaining its upward trajectory since late June. As of 12:51 PM local time, the euro-dollar exchange rate increased by 0.32% to 1.093, marking its highest level since March.
On July 16, the European Central Bank (ECB) set the reference rate at 1.0902 dollars.
Analysts attribute the dollar’s recent weakness, which has been pronounced against all major currencies, to the significant decline in U.S. inflation in June. This decline has raised the likelihood of a near-term reduction in the Federal Reserve’s benchmark interest rates.
Federal Reserve Chairman Jerome Powell’s statement on July 15, expressing a desire to avoid delaying rate cuts, has clarified market expectations. The market now anticipates at least two rate cuts by the Fed before the end of the year.
During his speech at the Washington Economic Club on July 15, Powell noted that recent data from the second quarter of this year has somewhat increased confidence that inflation is heading towards the 2% target.
Meanwhile, the ECB Governing Council made its first rate cut in five years during its June 5-6 meeting, reducing the three main policy rates by 25 basis points.
The ECB’s next meeting on interest rates is scheduled for tomorrow. It is expected that the ECB will hold rates steady for now, without making another immediate cut.
Recent data indicates that inflation in the Eurozone fell to 2.5% in June. However, core inflation, which excludes energy and food prices, remained high at 2.9%.
Analysts highlight that from a monetary policy perspective in both the U.S. and the Eurozone, there are several reasons for the euro to remain strong and the dollar to stay weak. Investors in the foreign exchange options market have positioned themselves accordingly ahead of the ECB meeting.
Source: AA / Prepared by Irem Yildiz