Euro, Dollar, and Pound in Focus Amid Rate Changes and Economic Shifts.

• Euro (EUR): The ECB lowered interest rates, with further cuts dependent on economic data; EUR/USD reached a one-week high of 1.1120.
• ECB Rates: Deposit rate dropped to 3.5%, while the refinancing rate was cut by 60 bps to 3.65%, with future rate cuts uncertain.
• US Dollar (USD): The dollar weakened as markets await the Federal Reserve’s decision, with uncertainty over a 25 or 50 bps rate cut.
• Fed Rate Cut: Mixed US economic data, including rising jobless claims and producer prices, complicate expectations for next week’s rate cut.
• British Pound (GBP): GBP/USD recovered slightly to 1.3050 after softer US PPI data, but future movement is influenced by Fed rate expectations.

EUR: The Euro stayed buoyant against the US dollar after the European Central Bank (ECB) lowered interest rates. All eyes were on ECB President Christine Lagarde, who clarified that any further rate cuts will depend on upcoming economic data. “We will decide meeting by meeting,” Lagarde noted after the ECB cut rates by 25 basis points last Thursday. The EUR/USD pair broke above the 1.1100 mark, hitting 1.1120—its highest in a week. The ECB’s deposit rate now sits at 3.5%, while the refinancing rate was cut more sharply by 60 basis points to 3.65%. Lagarde emphasized that there are no predetermined plans for future rate cuts, which will hinge on inflation and growth data. Rate futures, however, pared back expectations for an October rate cut. Some analysts predict further easing in December, with the deposit rate possibly dropping to 3.25%, while others believe a deeper cut may occur next year if the Eurozone’s economic outlook worsens.

USD: The US dollar softened on Friday, with both the euro and yen gaining ahead of next week’s highly anticipated Federal Reserve decision. Uncertainty surrounds whether the Fed will implement a 25 or 50 basis point cut, with reports from the Financial Times and Wall Street Journal suggesting the decision is still finely balanced. Christopher Wong, a currency strategist at OCBC, cited rising US jobless claims and mixed economic data as factors reviving hopes for a 50 basis point cut in September. According to the CME FedWatch tool, the chances of a larger cut increased from 27% to 43%. However, recent economic data, including rising producer prices, could complicate the Fed’s decision, as inflationary pressures remain, raising the stakes for balancing employment and inflation objectives.

GBP: The British Pound (GBP) maintained its recovery from the key psychological support level of 1.3000, trading near 1.3050 against the US dollar during Thursday’s North American session. This slight rise followed softer-than-expected US Producer Price Index (PPI) data for August. The PPI grew at 1.7%, below forecasts, while core PPI held steady at 2.4%. Despite this uptick, the broader outlook for GBP/USD remains tilted to the downside as expectations grow for the Fed to initiate a 25-basis-point rate cut. While the latest US Consumer Price Index (CPI) showed annual inflation falling, core inflation—excluding food and energy—remains sticky, raising concerns that inflationary pressures may persist longer than expected.