EUR/USD extends gains as Fed cut bets weigh on US Dollar

• The Euro extends its advance against the US Dollar, with EUR/USD holding firm above 1.1750.
• Markets are fully pricing in a 25 bps Fed rate cut on Wednesday, with Powell’s guidance and updated projections set to drive the next move.
• The New York Empire State Manufacturing Index plunged to -8.7 in September, missing expectations of 5.0.

The Euro (EUR) extends gains against the US Dollar (USD) for the third straight day on Monday, as the Greenback remains under pressure amid firm expectations that the Federal Reserve (Fed) will lower interest rates at its monetary policy meeting on Wednesday.

At the time of writing, EUR/USD is trading around 1.1760, marginally up 0.20% on the day and edging closer to this year’s high near 1.1830, reached in July. Meanwhile, the US Dollar Index (DXY), which measures the Greenback's value against a basket of six major currencies, is hovering near 97.38, reflecting broad-based weakness at the start of a pivotal week for global markets.

Recent US economic data has cemented expectations for Fed easing with clear signs of a cooling labor market and weakening consumer sentiment, even as inflation remains above the central bank's target. Fresh figures on Monday reinforced that trend, as the New York Empire State Manufacturing Index slumped to -8.7 in September, sharply missing expectations of 5.0 and reversing from 11.9 in August.

Markets are fully pricing in a 25 basis-point rate cut, with attention centered on  Fed Chair Jerome Powell’s guidance and updated economic projections, which will shape the trajectory of monetary policy into year-end. The tone of the post-meeting statement and the so-called “dot plot” will be critical in determining whether investors expect a shallow adjustment or a more aggressive easing cycle.

Political pressure is also in play. On Monday, US President Donald Trump, posting on Truth Social, renewed his calls for the central bank to move more aggressively, urging Powell to deliver a cut “bigger than he had in mind” to support housing and broader economic momentum. Trump’s intervention adds political noise to an already sensitive policy backdrop, prompting market speculation over how far the Fed’s easing cycle could extend.

On the Euro side, the European Central Bank (ECB) has provided a measure of support for the single currency by signaling that its rate-cutting cycle is nearing its end. The ECB left its key rates unchanged at the September policy meeting, keeping the deposit rate at 2.00%, while stressing that the current stance is “appropriately positioned.” ECB board member Isabel Schnabel struck a firm tone on Monday, underscoring that interest rates are in a “good place” and warning that upside risks to inflation dominate.

Looking ahead, traders will keep a close eye on speeches from ECB President Christine Lagarde and Executive Board member José Luis Escrivá, both due later on Monday.