EUR/USD slid below the 1.0670 level on Tuesday after an unexpected uptick in US wages growth reignited fears of sticky inflation, chopping down rate cut expectations and sending investors into safe haven bids.
With European markets broadly shuttered on Wednesday for Labour Day, investors will be left to focus on the Federal Reserve’s (Fed) latest rate call. Markets are broadly expecting the Fed to hold rates steady for the time being, but market participants will be actively looking for firmer policy guidance from the US central bank as inflation fears and a steep downturn in US economic growth figures plague market sentiment.
US housing prices and wage costs for businesses both showed acceleration on Tuesday, while consumer and business sentiment surveys turn sharply lower at the same time. Investors are grappling with the prospect of a stagnant economy with too-high inflation that will hobble the Fed’s ability to cut rates at the higher pace that investors have been hoping for since the start of 2024.
According to the CME’s FedWatch Tool, rate markets now only see a single rate quarter-point rate cut from the Fed for the year, with a 54% chance of no rate cut in September and only a 57% chance of a 25-basis-point rate trim at the Fed’s November policy meeting
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