EURUSD Continues Higher As ECB Rejects October Rate Cut

EURUSD dropped by two cents from its August peak but has since rebounded, as sellers failed to push the pair below the key 1.10 level. Moving averages (MAs) have provided support, with the 100 SMA acting as a primary support zone where the price consolidated on the H4 chart for several trading sessions.

On Thursday, the pair saw a strong bounce from this area, indicating significant buying pressure. Although the upward momentum slowed on Friday, it has since resumed, pushing EUR/USD above 1.11. Last week, the European Central Bank (ECB), responding to the worsening Eurozone economy, cut interest rates by 25 basis points.

EUR/USD Chart H4 – The 100 SMA Held As Support Above 1.10

However, this move did not weaken the Euro, as ECB officials reaffirmed the bank’s commitment to a gradual monetary easing process. The main driver behind the Euro’s rise is the growing belief that the U.S. Federal Reserve (Fed) will aggressively ease its monetary policy, which could weaken the USD. The U.S. Dollar Index (DXY) is also falling sharply, approaching 100 points, further strengthening the Euro.

Remarks from ECB Policymaker Peter Kažimír:

• The ECB is likely to hold off on any rate cuts until December.
• It would take a significant change in the economic outlook for a rate cut to happen in October.
• Very little new economic data is expected before the October meeting.
• There is no urgency to cut rates, and the ECB prefers to wait until the outlook becomes clearer.

These days, much of the market activity has become predictable, and economic developments are largely aligning with forecasts, which provides some stability. For the final two meetings of the year, traders are pricing in just over 39 basis points in rate cuts. Additionally, almost 75% of market participants expect no change in rates during the October meeting.

Comments from ECB Chief Economist Philip Lane:

• Recent data on wages and profits are in line with expectations.
• Wage growth will remain high and volatile throughout the rest of the year.
• A gradual reduction in policy restrictiveness is appropriate if future data align with projections.
• The ECB should remain flexible about the pace of its adjustments.

Lane has set aside the idea of a 50 basis point rate cut for now, as he believes the Eurozone’s economic data is showing signs of stabilization.

EUR/USD Live Chart