- EUR/USD softens to near 1.1725 in Friday’s Asian session.
- The ECB left the key deposit rate unchanged at 2.0% on Thursday.
- Fed is anticipated to cut its key interest rate by 25 bps on September 17.
The EUR/USD pair loses traction to around 1.1725 during the Asian trading hours on Friday, pressured by a firmer US Dollar (USD). Nonetheless, the potential downside might be limited amid the rising bets of the US Federal Reserve (Fed) rate cut next week. The German August Harmonized Index of Consumer Prices (HICP) and the University of Michigan Consumer Sentiment Index data will be in the spotlight later on Friday.
The European Central Bank (ECB) decided to hold interest rates steady at its September policy meeting on Thursday as economic uncertainty persists in the wake of US President Donald Trump’s aggressive tariff agenda. The ECB held its rate on the so-called deposit facility at 2.0% and maintained an upbeat view on growth and inflation, dampening expectations for any further cut in borrowing costs.
Traders raise bets that the ECB is done cutting rates, which could underpin the shared currency in the near term. Money markets are currently pricing in nearly a 40% odds of one last rate reduction by next spring, less than before the rate decision, according to Reuters.
Across the pond, a surge in US Initial Jobless Claims and a modest rise in inflation kept investors zeroed in on likely Federal Reserve interest rate cuts next week and beyond. Markets have fully priced in a September reduction and now expect three Fed rate cuts this year, compared to two just weeks ago.
Fed Chair Jerome Powell and other policymakers signaled an easing monetary policy despite inflation risks related to tariffs. Dovish tone from the Fed officials could weigh on the Greenback and create a tailwind for the major pair.
