Key Takeaways
- EUR/USD has fallen to a three-month low, pressured by the US Dollar’s strength.
- The Federal Reserve delivered a 25-basis-point rate cut with a hawkish tone, dampening December cut expectations.
- The European Central Bank maintained its interest rates, citing stable inflation and economic expansion.
- Policy divergence between the Fed and ECB is widening, influencing currency movements.
- Fed officials reinforced a cautious stance, suggesting rates are not on a preset path and a December cut is uncertain.
EUR/USD Faces Downward Pressure Amidst Fed’s Hawkish Stance
The Euro (EUR) experienced further depreciation against the US Dollar (USD) on Friday, pushing the EUR/USD currency pair to a three-month low. This decline is largely attributed to the Greenback’s resilience, bolstered by the Federal Reserve’s (Fed) hawkish commentary following a widely anticipated 25-basis-point rate cut earlier in the week.
At the time of reporting, EUR/USD was trading around the 1.1523 mark, extending its losses for a third consecutive day and indicating a potential first monthly decline in three months.
concurrently, the US Dollar Index (DXY), which measures the Greenback’s performance against a basket of six major currencies, held steady near three-month highs, hovering around 99.80. The index is poised for its second consecutive monthly gain, supported by diminishing expectations of further interest rate reductions from the Fed before the year’s end.
Central Bank Policy Divergence Fuels Market Sentiment
As the immediate reactions to this week’s central bank decisions subside, a more pronounced policy divergence has emerged between the Federal Reserve (Fed) and the European Central Bank (ECB). The Fed’s decision on Wednesday to reduce the federal funds rate to a range of 3.75%-4.00% was accompanied by cautious forward guidance from Chair Jerome Powell, which tempered market expectations for another rate reduction in December, a move largely considered a certainty by investors.
💡 The Fed’s rate cut, decided by a 10-2 vote, was in line with market forecasts.
In contrast, the ECB maintained its benchmark interest rate for the third consecutive meeting. The central bank cited that inflation remains near its medium-term target of 2% and that the Eurozone economy continues to exhibit expansion, supported by a robust labor market, despite facing global economic headwinds.
📍 The ECB reaffirmed its commitment to a data-dependent, meeting-by-meeting approach, emphasizing that no specific rate path is predetermined and that policy adjustments will be guided by incoming economic data and evolving inflation dynamics.
Fed Officials Reinforce Cautious Policy Outlook
Further reinforcing the Federal Reserve’s cautious approach, comments from Fed officials earlier in the day underscored the central bank’s measured stance. Atlanta Fed President Raphael Bostic indicated that the Fed’s mandates are currently in tension and expressed his support for the recent rate cut, noting that monetary policy remains in restrictive territory.
✅ Meanwhile, Cleveland Fed President Beth M. Hammack suggested she would have preferred to maintain current interest rates steady, emphasizing that the central bank is not operating on a preset course. Bostic also welcomed Chair Powell’s remarks that a rate cut in December is far from a foregone move.
US Dollar Performance Today
The table below shows the percentage change of the US Dollar (USD) against other major currencies today. The New Zealand Dollar experienced the most significant depreciation against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.36% | 0.14% | -0.03% | 0.23% | 0.22% | 0.37% | 0.32% | |
| EUR | -0.36% | -0.23% | -0.39% | -0.13% | -0.14% | 0.00% | -0.04% | |
| GBP | -0.14% | 0.23% | -0.16% | 0.10% | 0.10% | 0.24% | 0.18% | |
| JPY | 0.03% | 0.39% | 0.16% | 0.25% | 0.25% | 0.39% | 0.34% | |
| CAD | -0.23% | 0.13% | -0.10% | -0.25% | -0.02% | 0.14% | 0.08% | |
| AUD | -0.22% | 0.14% | -0.10% | -0.25% | 0.02% | 0.14% | 0.10% | |
| NZD | -0.37% | -0.01% | -0.24% | -0.39% | -0.14% | -0.14% | -0.06% | |
| CHF | -0.32% | 0.04% | -0.18% | -0.34% | -0.08% | -0.10% | 0.06% |
The heatmap illustrates the percentage changes of major currencies against one another. The base currency is selected from the left-side column, while the quote currency is chosen from the top row. For instance, selecting the US Dollar from the left column and moving across to the Japanese Yen shows the percentage change for USD (base)/JPY (quote).
Final Thoughts
The current market dynamic sees the EUR/USD pair under pressure due to the US Dollar’s gaining strength. This trend is significantly influenced by the contrasting monetary policy outlooks of the Federal Reserve and the European Central Bank.
The divergence in their recent policy decisions and future guidance suggests continued volatility in the EUR/USD exchange rate as markets digest these developments.