The EUR/USD pair has experienced a decline, trading at approximately 1.1585 during the early hours of the Asian session on Monday. Traders are intensifying their expectations that the Federal Reserve will raise its benchmark interest rate by a quarter percentage point on Wednesday. The ECB’s hawkish stance has led to heightened expectations regarding additional rate hikes. The EUR/USD pair experiences a decline, approaching 1.1585 in the early Asian session on Monday. The pair continues its downward trajectory in response to heightened expectations of aggressive rate hikes by the Federal Reserve, spurred by stronger-than-anticipated inflation reports from the United States. Market participants prepare for the Federal Reserve’s interest rate decision scheduled for later on Wednesday.
The US Consumer Price Index accelerated in August, reinforcing expectations that the US central bank will raise interest rates next week. Data released by the Bureau of Labour Statistics on Friday indicated that the US CPI experienced a 0.4% month-over-month increase in August, resulting in a 12-month rise of 3.4%. Both readings aligned with market expectations. Meanwhile, the core CPI, which excludes volatile food and energy prices, increased by 0.3% on a monthly basis, compared to 0.2% previously, surpassing the forecast of 0.2%. Financial markets have assigned a nearly 91% probability to a quarter-point rate hike at the Fed’s September meeting, an increase from 72% prior to the release of the US PPI data, as indicated by the CME FedWatch tool. “There’s no guarantee that the Fed will hike next week, but it’s hard to see how the central bank can justify leaving rates on hold,” said Chris Zaccarelli.
The European Central Bank raised the interest rate on the deposit facility to 2.50% at its September policy meeting last week, as widely expected. It marked the European Central Bank’s second increase in interest rates this year, following the initial adjustment in June, which was the first since 2023. Barclays analysts anticipate that the ECB will implement additional rate hikes following a hawkish policy decision that has intensified worries regarding the potential persistence of elevated inflation levels. Analysts at Scotiabank note that the latest European Central Bank decision delivered “messaging from the ECB [that] was mixed but hawkish overall,” with policymakers publishing “a fresh forecast that saw inflation remaining above target through the end of the projection horizon.” According to the bank, the communication from ECB President Christine Lagarde, alongside “subsequent comments from key members of the governing council,” has “leaned toward further near-term hikes and pushed markets to price nearly 40bpts of additional tightening by year end,” reinforcing the market’s perception that the ECB remains firmly focused on inflation risks despite softer Euro price action.
In the daily chart, EUR/USD is positioned above the lower band of the Bollinger Bands and the 100-day simple moving average, indicating a slight underlying demand. However, the price remains below the middle band of the Bollinger Bands, which restricts upward movement. The Relative Strength Index (14) at 48.8 indicates a position near neutrality, implying that momentum is evenly matched and resulting in a near-term bias that is largely sideways as the pair consolidates within the range of proximate support and resistance levels. On the topside, initial resistance is situated at the Bollinger middle band SMA near 1.1628, followed by the upper band around 1.1695, where selling interest may escalate if approached. On the downside, immediate support aligns with the lower Bollinger band at 1.1560 and the 100-day SMA at 1.1555, forming a tight demand zone; a daily close below this cluster would expose the pair to deeper losses, while holding above it keeps the door open for another attempt toward the 1.1628 barrier.
