- EUR/USD gains 0.18% on the week as markets fully price in a 25-bps Fed cut in September.
- Weak sentiment, payroll revisions, and rising jobless claims point to further U.S. labor market deterioration ahead of the FOMC.
- The ECB keeps rates unchanged with a data-dependent approach, while U.S. policy uncertainty and the Fed independence debate add to volatility.
EUR/USD holds steady in Friday’s North American session, on track to close the week with modest gains of just over 0.18% as traders await next week’s Federal Reserve (Fed) policy decision. At the time of writing, the pair is trading at 1.1736, little changed.
Euro closes the week modestly higher as soft U.S. data strengthens rate cut expectations, narrowing policy divergence with the ECB
U.S. economic data remained the main driver on Friday. September’s Consumer Sentiment deteriorated while inflation expectations stayed above the Fed’s 2% target. Along with Tuesday’s payrolls revision and higher-than-expected Initial Jobless Claims, this reinforced the case for the Fed’s first rate cut in nine months.
Markets have fully priced in a 25-basis-point cut at the September 16–17 meeting. Meanwhile, the European Central Bank (ECB) kept rates unchanged, maintaining a data-dependent stance and avoiding any firm commitment on future policy.
Against this backdrop, EUR/USD leans to the upside as the interest rate gap between the U.S. and Europe narrows. Diverging central bank paths and the weakening U.S. labor market could encourage investors to buy the euro, partly as a safe-haven play.
Breaking developments showed the D.C. Circuit Court set a weekend briefing schedule to decide whether Governor Lisa Cook can remain at the Fed, amid a legal challenge from former President Trump, according to the Wall Street Journal’s Nick Timiraos.
Looking ahead, next week’s U.S. docket includes the FOMC meeting and Retail Sales, while in Europe investors will monitor ECB speeches, Eurozone Industrial Production, and the ZEW Survey.
Daily market movers: EUR/USD gains capped as Americans turn pessimistic
- The University of Michigan Consumer Sentiment Index fell from 58.2 to 55.4. One-year inflation expectations held at 4.8%, while five-year expectations climbed from 3.5% to 3.9%.
- ECB President Christine Lagarde said the disinflationary process is over, policy is “in a good place,” and the rate hold decision was unanimous. She also noted reduced trade uncertainty but downside risks for growth.
- The U.S. Dollar Index (DXY) rose 0.15% to 97.64.
- Fitch Ratings expects two 25-bps Fed cuts this year (September and December) and three more in 2026, while projecting no further cuts from the ECB.
- Traders now see a 90% chance of a 25-bps Fed cut and a 10% chance of a 50-bps move, according to Prime Market Terminal. For the ECB, odds favor no change (93%) with just a 7% chance of a 25-bps cut.
Technical outlook: EUR/USD steady around 1.1730
EUR/USD held flat on Friday after forming a bullish engulfing pattern Thursday. The RSI turned neutral, signaling limited conviction from both buyers and sellers.
A daily close above 1.1750 would open the door to 1.1800 and the year-to-date high at 1.1829. On the downside, a break below 1.1700 would expose support at the 20-day SMA (1.1677) and the 50-day SMA (1.1658).
