Euro holds ground amid hawkish Fed tone and improved consumer confidence

• The Euro consolidates after a modest recovery, with upside limited by hawkish Fed commentary.
• Consumer sentiment in the Eurozone improved in September to -14.9 in the preliminary reading, beating forecasts of -15.3.
• Focus now shifts to upcoming speeches from ECB’s Joachim Nagel and Fed officials Barkin, Hammack, and Miran for fresh policy cues.

The Euro (EUR) steadies against the US Dollar (USD) on Monday, halting a three-day losing streak as the Greenback trades under mild pressure. At the time of writing, EUR/USD is trading near 1.1765 during the American session, easing slightly from its intraday high of 1.1788.

Meanwhile, the US Dollar Index (DXY), which measures the Greenback's value against a basket of six major currencies, also pauses its three-day advance but holds firm above the 97.50 level as traders weigh the implications of the Federal Reserve (Fed) monetary policy outlook following last week’s 25 basis point (bps) interest rate cut.

On the data front, the preliminary Eurozone Consumer Confidence index for September improved slightly to -14.9 from -15.5 in August, beating the forecast of -15.3. Despite the modest upside surprise, the release had little impact on the Euro as markets focused on hawkish-leaning remarks from Fed officials, which signaled that policymakers are reluctant to commit to further easing.

Atlanta Fed President Raphael Bostic told the Wall Street Journal that he sees little reason to cut rates further for now, noting he penciled in only one reduction for all of 2025. He described the current environment as one of the most difficult periods for policymakers, with risks rising on both sides of the mandate, while emphasizing that he does not believe the labor market is in crisis

Echoing that cautious tone, Fed Alberto Musalem said on Monday he supported the recent 25 basis point rate cut as a “precautionary move” to support the labor market, but emphasized that further easing should be approached with caution. Musalem noted the US economy is operating near full employment and argued that the recent rate cut should be sufficient to help sustain that strength. However, he warned that placing too much emphasis on labor market conditions could lead to an overly loose policy stance, potentially doing more harm than good.

He also pointed to tariffs as a contributing factor to inflation, noting that their full impact on prices has yet to materialize. With financial conditions already loose and inflation still elevated, Musalem urged a cautious approach to any further rate reductions.

Looking ahead, attention will shift to fresh central bank commentary later in the day. On the Euro side, ECB’s Joachim Nagel is scheduled to speak, while in the US, remarks from Richmond Fed President Thomas Barkin, Fed Governor Adriana Hammack, and Fed Governor Stephen Miran will be closely watched for additional clues on the monetary policy outlook.