EUR/USD to keep recovering within its three-week range – DBS

EUR/USD rebounded from its critical support level of 1.10 by 0.6% to 1.1074 after the European Central Bank meeting. As expected, the ECB lowered the deposit facility rate by 25 bps to 3.50%, DBS’ Senior FX Strategist Philip Wee notes.

First Fed cut expected at next week’s FOMC meeting

“In maintaining its stance on deciding rates meeting by meeting based on data, the ECB did not signal another cut at the October 17 meeting. Although the ECB lowered its forecasts for the Eurozone economy to 0.8% from 0.9% for 2024 and to 1.3% from 1.4% for 2025, it expected inflation to rise again in 4Q24 after another low reading In September, in anticipation of negotiated wage growth staying high for the rest of 2024.”

“In line with past guidance, the ECB lowered the main refi and marginal lending facility rates by a larger 60 bps to 3.65% and 3.90%, respectively. This technical adjustment to narrow the gaps between the three policy rates should help rekindle lending between banks and support the economy amid higher inflation in the final quarter.”

“Hence, the ECB will likely defer any decision to lower rates again to the year’s final meeting on December 12. Meanwhile, EUR/USD should keep recovering within its three-week range from markets turning its attention to the first Fed cut expected at next week’s FOMC meeting on September 18.”