- EUR/USD is pulling back after hitting a four-week high of 1.1742 on Friday.
- Fed Chair Powell stated that risks to the labor market are increasing, while also noting that inflation remains a concern.
- ECB’s Nagel said that central bank would require a significant change in the economic outlook before considering further rate cuts.
EUR/USD depreciates after registering around 1% gains in the previous session, trading around 1.1700 during the Asian hours on Monday. However, the downside of the pair could be limited as the US Dollar (USD) may continue to lose ground amid rising likelihood of a Federal Reserve (Fed) interest rate cut in September, driven by the comments from Fed Chair Jerome Powell at the Jackson Hole symposium on Friday.
The Fed Chair Powell stated that risks to the job market were rising, but also noted inflation remained a threat and that a decision wasn’t set in stone. Powell further stated that the Federal Reserve still believes it may not need to tighten policy solely based on uncertain estimates that employment may be beyond its maximum sustainable level.
According to the CME FedWatch tool, traders are now pricing in nearly an 85% odds of a 25 basis points (bps) rate cut in September, up from 75% before the speech. Focus will also shift to the upcoming release of the Q2 US Gross Domestic Product Annualized and July Personal Consumption Expenditures – Price Index data, the Fed’s preferred inflation gauge.
The European Central Bank (ECB) Governing Council member Joachim Nagel said in Jackson Hole that the central bank would need a significant shift in the economic outlook to lower borrowing costs again. Moreover, ECB Governing Council member Martins Kazaks said that the central bank has entered a new monetary-policy phase where officials can focus on monitoring the economy rather than actively intervening to change its course, Bloomberg reported on Sunday.
(This story was corrected on August 25 at 02:55 GMT to say, in the third paragraph, that focus will also shift to the upcoming release of data, not Friday’s release.)
