EUR/USD corrects slightly from 1.1200, the highest level seen in more than a year, in Monday’s European session. Still, the broader outlook for the major currency pair is positive as the US Dollar (USD) remains on the backfoot as a Fed rate cut in September is fully priced in.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, struggles to gain ground after posting a fresh year-to-date (YTD) low of 100.53.
Market expectations for Fed interest rate cuts in September appear to be certain as Fed Chair Jerome Powell said in his speech at the Jackson Hole (JH) Symposium on Friday that “the time has come for policy to adjust”.. Powell’s speech suggested that the central bank is more concerned about growing risks in the labor market, while it is gaining confidence that inflation is sustainably on track to the desired rate of 2%. "We will do everything we can to support a strong labor market, Powell added"
Even though the Fed is widely anticipated to deliver an interest rate cut in September, traders remain split over its size. According to the CME FedWatch tool, 30-day Federal Funds futures pricing data shows that the likelihood of a 50-basis point (bps) interest-rate reduction is at 36.5%, while the remaining 63.5% points to a smaller 25 bps cut.
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