The EUR/USD pair traded sideways on Friday during the North American session, stabilizing near 1.1736 and heading for a modest weekly gain of around 0.18%. Traders now shift their focus to next week’s Federal Reserve policy meeting, where a rate cut is widely expected.
Euro Ends Week Higher as US Weakness Fuels Policy Divergence
US data once again set the tone. Consumer Sentiment for September fell from 58.2 to 55.4, underscoring growing pessimism about the economy. Inflation expectations stayed sticky, with the one-year outlook at 4.8% and five-year expectations climbing to 3.9%, well above the Fed’s 2% target.
This, combined with earlier jobless claims and downward payroll revisions, has cemented expectations for the Fed’s first rate cut in nine months. Markets have almost fully priced in a 25 bps cut at the September 16–17 meeting, with a slim chance of a 50 bps move.
Meanwhile, the European Central Bank (ECB) kept policy unchanged this week, emphasizing a meeting-by-meeting approach. President Christine Lagarde said the disinflationary phase is over, though risks to growth remain tilted to the downside.
The narrowing policy gap between the US and Europe supports the Euro, as softer US labor data raises the appeal of the shared currency.
Market Movers
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Fed speculation: Traders now assign a 90% probability to a 25 bps cut, and 10% odds of a 50 bps cut.
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ECB outlook: Markets see a 93% chance of no policy change at the next meeting.
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DXY performance: The US Dollar Index edged up 0.15% to 97.64, though its upside remains capped by Fed easing expectations.
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Fitch Ratings expects two Fed cuts in 2025 (September and December), with three more in 2026, while projecting no further ECB easing.
On the political front, Washington saw fresh drama as the DC Circuit set a briefing schedule to review whether Governor Lisa Cook can remain at the Fed, in a case linked to former President Trump’s removal efforts.
Looking ahead, the US calendar features the FOMC decision and retail sales, while in Europe, investors will track ECB speeches, Eurozone industrial output, and the ZEW survey.
Technical Outlook
EUR/USD closed the week steady around 1.1730, following a bullish engulfing candle on Thursday. The RSI has flattened, signaling indecision between buyers and sellers.
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Upside levels: A daily close above 1.1750 would open the door to test 1.1800 and the yearly high at 1.1829.
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Downside levels: A slip under 1.1700 could expose the 20-day SMA at 1.1677 and the 50-day SMA at 1.1658.
EUR/USD is holding its ground as weak US data boosts Fed rate cut bets. If the pair clears 1.1750, momentum could build toward 1.18, while a drop under 1.17 would hint at renewed downside pressure.
