- The Euro leaves the area of recent highs against the Dollar.
- European stocks are trading mostly with losses on Tuesday.
- The FOMC Minutes and the ECB’s Lagarde speech will take center stage late in the day.
The Euro is under some pressure against the US Dollar, causing the EUR/USD pair to cut part of the previous rise and reach new three-month highs in the 1.0960-1.0965 area, a region not seen since mid-August , where some initial resistance seems to have arisen so far.
On the other side of the coin, the Dollar, as measured by the USD Index (DXY), manages to bounce from recent lows in the 103.20 area despite the tepid bearish note so far in US yields across the curve.
The Dollar’s Decline is fueled by growing speculation about a possible Federal Reserve (Fed) interest rate cut in spring 2024, which continues to be underpinned by lower inflation indicators (CPI and PPI). than expected published last week.
On the European agenda, the president of the European Central Bank (ECB), Christine Lagarde, will speak in Germany on “Inflation kills democracy.”
Across the pond, the Chicago Fed’s national activity index dropped to -0.49 in October. Later in the session, existing home sales data will be released, followed by the FOMC Minutes from the November 1 meeting.
Daily Market Summary: Euro Loses Momentum After Dollar Recovery
- On Tuesday, the Euro loses some momentum against the Dollar.
- US yields are trading in a mixed tone, German yields remain on the defensive.
- Investors remain confident in an interest rate cut by the Fed in the first quarter of 2024.
- Markets expect the ECB to extend its pause until early next year.
- BOE Governor Andrew Bailey expressed concern about persistent inflation.
- Gediminas Simkus of the ECB rules out another hike in December.
- The RBA minutes were hardline.
Technical Analysis: Euro faces next key target at 1.1000
EUR/USD extends bullish move to new multi-week highs, surpassing 1.0960 on Tuesday.
The November high of 1.0965 (Nov 21) is currently just before the 1.1000 psychological level for EUR/USD. Further north, the pair could run into the August high of 1.1064 (Aug 10) and another weekly high of 1.1149 (July 27), all of which precede the 2023 high of 1.1275 (July 18).
On the other hand, occasional bearish rallies should first find support at the key 200-day SMA at 1.0806, seconded by the temporary 55-day SMA at 1.0648. South of here, the weekly low of 1.0495 (Oct 13) appears before the 2023 low of 1.0448 (Oct 3).
Overall, the pair’s chances should hold as long as it continues to trade above the 200-day SMA.
Frequently asked questions about interest rates
What are interest rates?
Financial institutions charge interest rates on the loans they grant to borrowers and on the interest they pay to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks are typically mandated to ensure price stability, which in most cases means targeting an underlying inflation rate of around 2%.
If inflation falls below target, the central bank can cut base lending rates, with a view to stimulating credit and boosting the economy. If inflation rises substantially above 2%, the central bank usually raises interest rates to try to reduce it.
How do interest rates influence currencies?
Higher interest rates often help strengthen a country’s currency by making it a more attractive place for global investors to park their money.
How do interest rates influence the price of Gold?
In general, higher interest rates influence the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or depositing cash in the bank.
If interest rates are high, the price of the US dollar (USD) usually rises, and since gold is priced in dollars, the price of gold falls.
What is the Federal Funds rate?
The Fed funds rate is the overnight rate at which U.S. banks lend to each other. This is the main rate that the Federal Reserve usually cites at its FOMC meetings. It is set in a range, for example 4.75%-5.00%, although the upper limit (in that case 5.00%) is the quoted figure.
Market expectations about the future Fed funds rate are tracked by CME’s FedWatch tool, which determines the behavior of many financial markets in anticipation of the Federal Reserve’s future monetary policy decisions.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
