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Key Takeaways

• The US dollar bounced from three-year lows after the Fed cute rates. This move was supported by the rise in US Treasury yields seen late in the week.
• Fed officials Daly and Kashkari offered cautious tones, while Miran reaffirmed his preference for deeper easing.
• French spending cut protests put pressure on Macron’s new Prime Minister, which added political headwinds for the euro.

The EUR/USD currency pair edged lower late in Friday's trading. This decline followed the greenback's recovery after it bounced off of three-year lows in the aftermath of the Federal Reserve's interest rate cut. Political turmoil in France amid higher US Treasury yields also affected the US dollar, as the currency pair slumped lower.

EUR/USD Pair Fell as Fed Speakers, Higher Yields, French Unrest Undermined the Euro's Momentum

The EUR/USD currency pair was seen trading at around 1.1747, down 0.32% as the economic docket on both sides of the Atlantic appeared to be light. Comments from Fed officials after the central bank reduced rates by 25 bps last Wednesday suggested that the stance of the majority of the Federal Open Market Committee (FOMC) is neutral, with the exception of Fed Governor Stephen Miran.

The US economic docket featured comments by San Francisco Fed President Mary Daly, Minneapolis Fed President Neel Kashkari, and Governor Miran. Daly’s message was mildly dovish, while Kashkari sounded neutral, even opening the door for hikes if needed. Conversely, Governor Miran confirmed that the “dot plot” on the lowest range for the Fed funds rate was him, saying that he does not think that a 50 bps cut “would worry markets.”

In France, protests exerted downward pressure on the shared currency as hundreds of thousands of people met in France’s main cities on Thursday to pressure President Emmanuel Macron and newly appointed Prime Minister Sebastien Lecomu to scrap plans to cut spending proposed by the previous Prime Minister, François Bayrou.

Next week, the US economic docket will feature S&P Global Flash PMIs, Durable Goods, Jobless Claims, GDP data, and the release of the Fed’s favorite inflation gauge, the Core PCE. Alongside this, a flurry of Fed officials will hit the media.

Market Movers: EUR/USD Pair Capped by Fed's Neutral Stance & Comments

• Mary Daly commented that the Fed's move to cut rates was in effort to try and bolster a weakening labor market, noting a pointed softening of the US economy over the past year.
• Minneapolis Minnesota Fed President Neel Kashkari said that he supported the rate cut this week, as risks of an increase in unemployment warranted some action. He said that it is hard to see inflation climbing much higher than 3% from tariffs and added that if the jobs market improves and inflation rises, the Fed should hold rates.
• Fed Governor Stephen Miran said that the economy should have an interest rate not too far from the neutral rate. He added that he will announce a review of his views on Monday.
• The US Dollar Index (DXY), which tracks the buck’s value against a basket of six currencies, edged up 0.31% at around the 97.66 mark.
• Last Thursday, weekly US Initial Jobless Claims fell to 231,000 in the week ending Sept. 13, undershooting expectations of 240,000 and down sharply from the prior week’s upwardly revised 264,000.
• Meanwhile, the Philadelphia Fed Manufacturing Index rebounded strongly in September, jumping to 23.2 from August’s -0.3, far surpassing the 2.3 forecast and signaling robust activity in the sector.
• Futures markets appeared to price in a 90% probability of a 25-basis-point Fed rate cut this month, along with nearly an 80% chance of another quarter-point reduction in December.

Technical Outlook: EUR/USD Pair Pulled Back Below 1.1750, Bias Stayed Bullish

The EUR/USD pair appeared to ease after its recent gains, with the “evening star” formation confirming that the euro weakened. Although bears did not clear the Sept. 11 low at 1.1659, they looked to be gathering some steam. A breach of the 1.1700 level would expose the latter, as well as the confluence of the 100-day SMA and the Aug. 27 swing low near the 1.1560–1.1574 area.

The Relative Strength Index (RSI) remained supportive of the broader uptrend, as it stayed clear of overbought territory. On the upside, a rebound above the 1.1800 level would open the door to the 1.1850 mark, with potential scope to retest the year-to-date high at the 1.1918 level.
 

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