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ASIA: On Monday, EUR/USD extended its gains for the second consecutive trading day, trading near 1.1190. The advance in the euro is attributed to a weakening US dollar following a dovish speech by Fed Chairman Jerome Powell at the Jackson Hole Symposium last Friday.
Powell indicated that “now is the time to adjust policy,” though he did not specify the timing or magnitude of potential rate cuts. Market expectations now lean towards a 25 basis point reduction at the Federal Reserve’s September meeting.
Additionally, Philadelphia Fed President Patrick Harker and Chicago Fed President Austan Goolsbee both highlighted the need for gradual rate reductions. Goolsbee noted that the current monetary policy is the most restrictive, with the Fed focusing on achieving employment goals.
In contrast, European Central Bank (ECB) Governing Council member Olli Rehn mentioned that slowing inflation and a weak eurozone economy strengthen the argument for lowering borrowing costs next month. The sluggish economic growth in Europe, particularly in manufacturing, supports a possible rate cut in September.
Jane Foley, senior foreign exchange strategist at Rabobank, forecasted a trading range of 1.1200 for EUR/USD over the next three months. She noted that the recent EUR/USD breakout and the start of a new Fed policy cycle suggest a new trading range. However, Foley cautioned that stronger-than-expected US economic data in early September could lead to a pullback towards 1.1000.
