- Concerns about the Federal Reserve’s independence and trade woes undermined the market mood.
- The first week of September will bring inflation, employment, and growth updates.
- EUR/USD ends August at the upper end of its monthly range, with bulls still in charge.
The US Dollar (USD) kick-started the week trimming Federal Reserve (Fed) Chair Jerome Powell’s inspired losses amid fading optimism, due to fresh concerns about the Fed independence and fresh tariff-related noise.
The lack of first-tier data releases maintained markets in consolidative mode with the EUR/USD pair confined to a tight range, limited by the 1.1600 mark on the downside and the August top at 1.1741 on the upside. By the end of the week, however, EUR/USD recovered most of the ground shed on Monday, with the pair settling around the 1.1700 threshold.
Federal Reserve independence under siege
United States (US) President Donald Trump decided to oust Fed Governor Lisa Cook, amid allegations of mortgage fraud. Governor Cook denied Trump’s authority, and by the end of the week, headlines indicated that Cook had sued Trump, alleging that his decision violated his executive authority and illegally deprived her of her due process right to respond to accusations that she had committed mortgage fraud.
The movement came after months of Trump attacking Chair Powell’s decision to keep interest rates on hold, and is part of the White House strategy to seize control of the Federal Open Market Committee (FOMC), the Fed’s governing board. Trump claims the economy would progress at a much faster pace with lower rates, but his constant challenge to the central bank’s independence is spurring unnecessary concerns.
Even further, it could backfire, as part of Trump’s campaign promises included reducing inflation. Easing rates at a faster pace may bring back inflationary pressures.
Back to the Fed, dovish comments from Fed Bank of New York President John Williams put fresh pressure on the Greenback, as Williams said that growth and the fact that the economy is going through an adjustment phase are paving the way for interest rate cuts, although clarifying that policymakers need to see more economic data before reaching a conclusion.
Global trade back and forth
On the trade front, Trump threatened fresh tariffs, announcing he would impose levies on countries that apply digital taxes to US tech companies. “I put all Countries with Digital Taxes, Legislation, Rules, or Regulations on notice that unless these discriminatory actions are removed, I, as President of the United States, will impose substantial additional Tariffs on that Country’s Exports to the U.S.A,” he stated on a post in Truth Social.
On a positive note, the European Commission announced a proposal to remove tariffs on American industrial goods, while providing preferential market access for some US seafood and agricultural goods, on Thursday. The measures are part of the framework trade agreement that the European Union (EU) and the US made at the end of July, and should result in the US reducing tariffs retroactively on the automotive sector. That means the EU will only face levies of 15% against the current 30%.
European political noise
The Euro (EUR) struggled to post meaningful gains, partially due to local political woes. Concerns revolved around the French government’s stability, after Prime Minister François Bayrou asked President Emmanuel Macron to reconvene parliament for a confidence vote in his government on September 8. Bayrou’s austerity measures are in the eye of the storm, and the Parliament is unlikely to endorse them.
Other than that, Russia’s attacks on Ukraine ended up hitting an EU delegation building in Kyiv. EU Commission President Ursula von der Leyen accused Russia of indiscriminate attacks, “last night’s attacks show Kremlin will stop at nothing to terrorize Ukraine, even targeting the EU,” she said.
Busy days ahead
The macroeconomic calendar was quite scarce in the last week of August. Germany released the IFO Survey, which showed the Business Climate improved to 89 from the 88.6 posted in July, also beating the expected 88.6. Expectations also improved, with the index hitting 91.6, better than the 90.2 anticipated. On a negative note, the assessment of the current situation eased modestly, from the 86.5 posted in the previous month to 86.4.
The country also released the GfK Consumer Confidence Survey, which fell in September to -23.6 from a revised -21.7 in the previous month, also missing expectations of -21.5.
Also, the European Central Bank (ECB) released the Monetary Policy Meeting Accounts, which showed policymakers are comfortable with the current policy rates, seeing them in neutral territory. The document also showed that officials remain concerned amid persistent uncertainty, and noted both upside and downside risks to growth and inflation.
Across the pond, upbeat US data did little for the USD. The country upwardly revised its Q2 Gross Domestic Product (GDP) to 3.3% from the previous 3.1%. Also, the Conference Board Consumer Sentiment eased slightly to 97.4 in August from a revised 98.7 in July, but beat the expected 96.4.
The US published the July Personal Consumption Expenditures (PCE) Price Index on Friday. Annualized inflation as measured by the index held steady at 2.6% on a yearly basis, as expected, while the core annual figure printed at 2.9%, slightly higher than the previous 2.8% but also meeting the market forecast. Finally, the Michigan Consumer Sentiment Index was downwardly revised in August to 58.2 from the previous estimate of 58.6. The USD edged lower with the latter, pushing EUR/USD closer to the 1.1700 mark.
During the upcoming days, speculative interest will be busier with inflation, employment, and growth updates.
The EU will publish the preliminary estimate of the August Harmonized Index of Consumer Prices (HICP) on Tuesday and July Retail Sales on Thursday. By the end of the week, the Union will unveil a revision of the Q2 GDP. In the meantime, ECB President Christine Lagarde is scheduled to speak a couple of times throughout the week.
The US will release the August ISM Manufacturing Purchasing Manager Index (PMI) and the ISM Services PMI for the same month, alongside different employment-related reports, ahead of the Nonfarm Payrolls (NFP) report scheduled for Friday.
EUR/USD technical outlook
From a technical point of view, the EUR/USD pair has made little progress. The weekly chart shows that buyers keep taking their chances on dips, amid two consecutive candles with long downward wicks. The same chart shows that bulls appear on approaches to the 20 Simple Moving Average (SMA), which has lost its upward momentum, but remains far above directionless 100 and 200 SMAs. The 20 SMA currently stands at around 1.1520. Other than that, the Momentum indicator turned but remains within positive levels, while the Relative Strength Index (RSI) indicator hovers around 63 without providing clear directional clues.
The EUR/USD pair’s daily chart shows that a mildly bullish 20 SMA has provided intraday support, with slides below it quickly resulting in fresh buying. The SMA currently stands at around 1.1650, EUR/USD’s comfort area for most of August. At the same time, the 100 and 200 SMAs remain below the shorter one, but lack momentum enough to grant a bullish breakout. Finally, technical indicators aim marginally higher within positive levels, also falling short of confirming a continued advance.
The pair would need to overcome the 1.1740 area to extend its advance towards the next relevant resistance at 1.1830, the yearly high. Further advances expose the 1.1900 threshold. Support, on the other hand, comes at around the 1.1590 area, followed by the mentioned 20-week SMA at 1.1520.
