Back to the downside of the transaction – DBS

EUR/USD rose 0.2% to 1.1072, brushing aside Germany’s far-right Alternative for Germany (AfD) victory in the eastern state of Thuringia, but is now back below 1.1048 at 1.1035, notes Philip Wee, DBS Senior FX Strategist.

The ECB will join the Fed in cutting interest rates.

“The euro depreciated over the last three days of the previous week, falling to 1.1048 from 1.1184 on expectations of a second interest rate cut at the European Central Bank’s September 12 meeting.”

“After euro area CPI inflation fell to 2.2% year-on-year in August, down from 2.6% in July, the OIS market estimated a 94% chance of a 25bp cut in the deposit facility rate at 3.50%.

“Last week, the ECB’s chief economist, Philip Lane, warned that the mission to return to the 2% target was “not yet certain”, signaling concerns about the market pricing in a neutral rate of 2.00-2, 50% by mid-2025″.