The EUR/USD exchange rate experienced a rebound, trading stronger around 1.1080 during the early hours of the Asian session on Friday. This upward movement marked a break from two days of losses. However, the currency pair’s potential for further gains might be constrained as traders remain cautious, awaiting key economic data, including Germany’s July Retail Sales and the US Personal Consumption Expenditure (PCE) Price Index for July.
Recent data from the Department of Commerce revealed that the US Gross Domestic Product (GDP) grew at an annualized rate of 3.0% in the second quarter. This figure surpassed expectations, which had predicted a growth rate of 2.8%. The stronger-than-anticipated GDP growth raises prospects for the US economy, suggesting it may avoid recession. Such developments lower the likelihood of a more drastic rate cut from the Federal Reserve in September, providing a degree of support for the US Dollar (USD). Currently, market expectations are leaning towards a 66% chance of a 25 basis point rate cut, while the likelihood of a more significant cut has slightly decreased.
Meanwhile, economic indicators from Germany and Spain indicated a further easing of inflation in August. This trend has fueled speculation about a potential interest rate reduction by the European Central Bank (ECB), putting additional pressure on the EURO (EUR). Analysts noted that the cooling inflation, paired with a slowing economy, creates a favorable environment for the ECB to consider lower rates. Nonetheless, there are warnings that inflation in services remains a concern, suggesting that not all aspects of the economy are on a downward trend.
As traders digest this information, the movements in the EUR/USD market will likely depend heavily on upcoming economic reports and further developments in monetary policy from both the European and US central banks.
