EUR/USD wavers within range after Fitch downgrade of French debt rating
- The Euro fluctuates following Fitch's downgrade of France's debt rating on Friday.
- US Dollar volatility remains at relatively low levels ahead of the Fed decision on Wednesday.
- The calendar is light on Monday, with only ECB's Schnabel and President Lagarde's public appearances on tap.
The EUR/USD pair trades at 1.1740 during Monday's European session, recovering from a pullback to 1.1720 earlier in the day. The common currency opened the week on a hesitant tone after Fitch's downgrade d France's sovereign debt rating, while the US Dollar's (USD) volatility remains subdued as the market braces for the outcome of the US Federal Reserve (Fed) monetary policy meeting due on Wednesday.
On Friday, the Fitch rating agency downgraded France's debt ranking to A+, its lowest level on record, citing its uncertain political situation – President Emmanuelle Macron named Sebastien Lecornu as the third Prime Minister of his term last week –, and a fiscal deficit that is only expected to continue growing.
The impact of Fitch's announcement on the Euro (EUR) has been limited, as the Fed's decision remains front and center in financial markets. Investors have already priced in a 25 basis points cut, but the interest rate projections and Chairman Jerome Powell's press conference are likely to reveal changes in the forward guidance that might determine the US Dollar's near-term direction.
The macroeconomic docket is light on Monday. ECB President Lagarde will take part in a panel at the Institute Montaigne in Paris, and during the European afternoon, Isabel Schnabel will speak at an economic meeting in Luxembourg. Their comments about France's situation and the bank's next monetary policy plans are likely to provide some guidance for the Euro.
Euro Price Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.05% | -0.06% | -0.09% | 0.00% | -0.26% | -0.14% | 0.01% | |
| EUR | -0.05% | -0.08% | -0.21% | -0.05% | -0.27% | -0.23% | -0.05% | |
| GBP | 0.06% | 0.08% | -0.04% | 0.04% | -0.19% | -0.14% | -0.08% | |
| JPY | 0.09% | 0.21% | 0.04% | 0.07% | -0.12% | -0.06% | 0.11% | |
| CAD | -0.00% | 0.05% | -0.04% | -0.07% | -0.15% | -0.19% | -0.11% | |
| AUD | 0.26% | 0.27% | 0.19% | 0.12% | 0.15% | 0.04% | 0.19% | |
| NZD | 0.14% | 0.23% | 0.14% | 0.06% | 0.19% | -0.04% | 0.07% | |
| CHF | -0.01% | 0.05% | 0.08% | -0.11% | 0.11% | -0.19% | -0.07% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
Daily digest market movers: The US Dollar flattens with markets awaiting the Fed
- The US Dollar is moving within a tight range on Monday, with trading volumes declining as investors are increasingly wary of placing large USD directional bets ahead of Wednesday's Fed decision. In the absence of first-tier data, some ECB speakers might move the Euro, but the US Dollar is likely to remain at current levels, at least until Tuesday's US Retail Sales release.
- Data released on Friday by the University of Michigan revealed that U.S. consumer sentiment deteriorated well beyond expectations, dropping to a four-month low in September. The survey signaled that higher product prices stemming from tariffs are weighing on consumption, which is likely to dampen economic growth.
- Last week, a rather moderate increase in US consumer prices and an unexpectedly soft US Producer Prices Index (PPI) report, all in all, contributed to setting the conditions for a Fed rate cut this week and probably to a more dovish monetary policy stance going forward.
- In Europe, France's 10-year bond yield has jumped 5 basis points to levels past 3.5%, and the yield of the 30-year bond increased nearly 10 basis points to 4.33%, following the downgrade of its sovereign debt rating. These levels are below the early September highs that triggered a significant Euro reversal, but still are likely to keep EUR bulls in check.
Technical Analysis: EUR/USD is wavering within a bullish channel
EUR/USD bulls were capped at 1.1750, and the pair is pulling back on Monday. Downside attempts, however, are likely to remain limited with investors awaiting the Fed decision, which is likely to maintain the pair trading within current ranges during the first half of the week. Technical indicators are showing a fading bullish momentum.
To the downside, Friday's low at the 1.1700 area and the bottom of the ascending channel, now at 1.1675, are likely to challenge bears in the coming sessions. Below here, the September 11 low near 1.1660 comes into view ahead of the 1.1610-1.1630 area that encloses the lows of September 2,3, and 4.
Upside attempts are expected to find resistance at 1.1750. Further up, the 1.1780-1.1790 area (September 8, July 24 highs) is likely to hold bulls ahead of the channel top, now at 1.1810.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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