Recent Economic Developments
The US labor market has deteriorated significantly, with a downward revision of 911,000 new jobs created in the twelve months to March 2025. This indicates that the labor market is much weaker than previously estimated. Additionally, the European Central Bank has left benchmark rates on hold, stating that it is in a "good place." The latest US inflation data has cemented expectations of the first interest-rate cut from the Fed this year.
Labor Market and Inflation
The poor employment-related figures have boosted the odds for a larger interest rate cut. The US published the preliminary estimate of the annual revision to employment data, which showed that the number of new jobs created was downwardly revised by 911,000. This downward revision, combined with the dismal Nonfarm Payrolls report, which showed the economy added a modest 22,000 new jobs in August, has increased the likelihood of a larger interest rate cut. The weekly unemployment claims data also showed that the number of people filing for unemployment jumped to 263,000 in the week ended September 6, much worse than the previous 236,000 and the anticipated 235,000.
The US inflation data has come in mixed, with the Producer Price Index (PPI) showing that annualized inflation at producers’ levels rose by 2.6%, down from the 3.3% posted in July. However, the Consumer Price Index (CPI) showed that inflation held above the Fed’s goal, with the annual CPI rising to 2.9% in August from 2.7% in July. Despite the mixed inflation data, the weakening job market has increased the likelihood of an interest rate cut.
European Central Bank Decision
The European Central Bank announced its monetary policy decision, leaving interest rates unchanged. The ECB delivered fresh economic projections, which temporarily weighed on the Euro. The central bank now sees headline inflation averaging 2.1% in 2025, 1.7% in 2026, and 1.9% in 2027. The economy is projected to grow by 1.2% in 2025, revised up from the 0.9% expected in June.
Federal Reserve’s Decision
The Fed will announce its monetary policy decision after a two-day meeting. Despite sticky inflation, the weakening job market has increased the likelihood of a 25 basis points interest rate cut. The decision itself may have a limited impact on financial markets if the Fed delivers the anticipated interest rate cut. Market players will be looking for hints on future decisions and confirmation that more rate cuts are coming in October and December.
EUR/USD Technical Outlook
The EUR/USD pair has retained its neutral-to-bullish stance, developing well above a mildly bullish 20 Simple Moving Average (SMA). The pair has been consolidating within familiar levels, with bulls holding the grip yet sidelined. The weekly chart shows that the pair is keeping its neutral-to-bullish stance, with the 100 SMA aiming higher above a flat 200 SMA. The technical indicators are directionless within positive levels, keeping the risk skewed to the upside without confirming an upcoming advance.
Conclusion
In conclusion, the recent economic developments have increased the likelihood of an interest rate cut by the Fed. The poor labor market and mixed inflation data have boosted the odds for a larger interest rate cut. The European Central Bank’s decision to leave interest rates unchanged has also had an impact on the Euro. The EUR/USD pair is expected to continue consolidating within familiar levels, with bulls holding the grip yet sidelined. The upcoming Fed decision and other macroeconomic data releases will be closely watched by market players, and any hints of future decisions will have a significant impact on financial markets.
