EUR/USD stays under pressure as Fed decision approaches
EUR/USD remains under pressure around 1.1530–1.1540 on September 15, but the fundamental picture is becoming less one-sided than it was a few days ago. In the eurozone, August inflation, according to Eurostat’s preliminary estimate, accelerated to 3.3% y/y from 2.9% in July, mainly because of a 14.3% jump in energy prices.
1.1205
1.1236
At the same time, core inflation excluding energy, food, alcohol, and tobacco stayed well below the headline rate, at around 2.4%, while eurozone GDP growth in the second quarter was revised higher to 0.6% q/q and 1.2% y/y. This mix of more stable growth and still-high inflation leaves the ECB room for another rate hike, and Morgan Stanley now sees a possible 25 bp increase in December to 2.75%. This gives the euro some fundamental support, but not enough so far to overcome the dollar’s advantage.
Eurozone data send mixed policy signals
Inside the eurozone, the picture remains mixed. In Germany, inflation accelerated to 2.9% y/y in August from 2.8% in July, while energy prices rose by 10.5%, with core inflation at 2.4%. This supports the case for the ECB to remain cautious. In France, the situation is softer, as preliminary CPI accelerated to 2.4% y/y and HICP to 2.7%, but the economy showed almost no growth in the second quarter, unemployment stayed at 8.3%, and industrial production fell by 0.8% m/m in July.
So, Germany currently gives more inflation-related reasons for keeping rates high, while France shows a stronger risk of weak domestic demand. For EUR/USD, this means the eurozone is still not giving one clear and strong signal in favor of the euro.
Fed path becomes main dollar catalyst
From the U.S. side, the key factor remains tomorrow’s Fed decision. August CPI rose by 0.4% m/m and 3.4% y/y, while core CPI was 0.3% m/m and 2.4% y/y. Importantly, the energy index rose by 2.1% over the month and gasoline prices by 3.9%, so the oil shock is once again increasing the risk of more persistent overall inflation.
The market currently sees around a 90% chance of a Fed rate hike, and the main question has already shifted from the September move itself to how many more hikes may follow. Some Wall Street analysts see the possibility of up to three hikes by March, and this would be the most positive scenario for the dollar because of a wider yield gap. With a more cautious path after the September hike, the dollar could instead face profit-taking.
1.1500 remains key downside test
Ahead of the Fed rate decision, EUR/USD may remain under moderate pressure, with a possible test of support around 1.1500–1.1480, but a much deeper decline looks unlikely. Pullbacks toward 1.1580–1.1600, as noted in EUR/USD pressure deepens as Fed rate hike expectations rise, may face selling interest. A break above 1.1600 would open the way toward 1.1620–1.1640.
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