EUR/USD loses momentum to near 1.1850 ahead of ECB’s Lagarde speech, Fed rate decision

• EUR/USD softens to around 1.1855 in Wednesday’s Asian session.

• Traders have fully priced in a 25 bps Fed rate cut.  

• German ZEW sentiment improves in September. 

The EUR/USD pair loses momentum near 1.1855, snapping the four-day winning streak during the Asian trading hours on Wednesday. Nonetheless, the potential downside of the major pair might be limited, as economists expect the Federal Reserve (Fed) to deliver a 25 basis points (bps) rate cut at the conclusion of its two-day meeting on Wednesday.

The Fed is widely expected to lower its key lending rate in the range of 4.0% to 4.25%, the lowest level since late 2022. The probability of a 25 bps cut stands at 96%, according to CME FedWatch, which relies on 30-day Fed Funds futures prices to determine the likelihood. There's only a 4% chance of a jumbo cut of 50 bps. 

Traders will take more cues from the speech from the Fed’s Chair Jerome Powell after the policy meeting. "A 25 bp cut gives room for a somewhat dovish leaning, while a 50 bp cut would allow Chair Powell to be as hawkish as he likes, as the move itself would dominate aggregate impact," said ING economists.

Across the pond, the ZEW Economic Sentiment survey in Germany showed that investors’ expectations are growing optimistic, which might provide some support to the shared currency. Germany’s ZEW Economic Sentiment Index rose to 37.3 points from 34.7 points in August, stronger than the expectation of 26.3 points.  

The ECB President Christine Lagarde is set to speak later on Wednesday. Any dovish remarks from ECB policymakers could weigh on the EUR against the USD in the near term. The final reading of Harmonized Index of Consumer Prices (HICP) data from the Eurozone will be published later on the same day.