EUR/USD depreciated 0.2% to 1.1135 overnight. The European Central Bank is leaning towards a third rate cut at its meeting on October 17. ECB President Christine Lagarde told the European Parliament that the central bank was becoming more confident about getting inflation to its 2% target. Today, the expected decline in September’s CPI Estimate for the Eurozone (1.8% YoY consensus vs. 2.2% previous) below the 2% target should not come as a surprise following similar drops in Germany (1.6%), France (1.2%), and Italy (0.8%). Hence, EUR/USD could break below its two-week range of 1.11-1.12 if the Eurozone CPI Estimate drops more than the consensus. The next support at 1.10 should hold ahead of Friday’s US jobs report.
The DXY Index appreciated by 0.4% to 100.78 from the futures market reducing bets for a back-to-back 50 bps rate cut at the FOMC meeting on November 7. Fed Chair Jerome Powell clarified that the Fed was not lowering interest rates to address economic weakness but to recalibrate monetary policy towards a balanced stance between price stability and full employment. Despite his overall assessment that the US economy was on a solid footing, Powell reckoned that disinflation has been broad based, which should be affirmed by moderately lower prices paid indices in today’s ISM manufacturing survey and Thursday’s ISM services survey. Hence, the Fed did not require a further cooling in the labour market to return inflation to its 2% target, keeping the door open for more rate cuts to reduce restriction. Ultimately, all eyes will be on Friday’s US jobs report. September’s nonfarm payrolls should hold below 200k for a fourth month (150k consensus vs. 142k previous) while the unemployment rate stays unchanged at 4.2% in September, below the Fed’s 4.4% projection for 4Q24. DXY may test the 101 resistance on a weaker EUR, but pushing higher to 102 will require US bond yields to rise form their lows.
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