EUR/USD Strengthens on Dollar Weakness, Inflation Watch

The EUR/USD pair gained high and traded near 1.1680[1] in Friday's Asian session, supported by sustained weakness in the US dollar. Market commentators[2] point out that traders are waiting to see the US August PCE Price Index report that is scheduled later in the day. The PCE Index which is closely monitored by the Federal Reserve (Fed) could play a role in future policy orientation. Market observers[3] anticipate that the pair would be under close observation, and market sentiment may change due to inflation indications.

Market commentators[4] note that the Fed officials are sending mixed signals to traders regarding future interest rates policy. Market reports[5] point out that Kansas City Fed President Jeffrey Schmid has indicated that further reductions may not be necessary in order to reduce inflation. Meanwhile, Chicago Fed President Austan Goolsbee[6] said he was not keen to make further concessions as long as inflation is not persistently low. Analysts[7] note that both policymakers remain uncertain about the next step that the Fed would take concerning monetary policy.

Market commentators[8] highlight that the market centres its attention on the future data on consumer spending in the US to provide indications on the direction Fed policy moves. The odds have been slightly reduced to 87.7% that traders see a 25 bps October rate cut. Analysts[9] expect it to have reduced to 90% to 92% this week, with the markets changing its expectation. Further increases in inflation would undermine the rate-cut argument, upholding the US dollar instead. This could lead to resistance of the key currency pair in the short run.

The majority of the economists who took part in a survey given by the market reports believe that the European Central Bank (ECB)[10] will maintain steady rates this year. Rising anticipations that the ECB has completed its reduction may favour the Euro over the Dollar. However, certain financial institutions caution of the potential reduction of rates in the second part of this year or in early 2026. Analysts[11] anticipate that the next steps to be taken by the ECB would be determined by the state of the economy and inflation patterns in the Eurozone, which would keep investors watchful.

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AUD/USD Bears Tension Near Critical Support Levels

AUD/USD traded near 0.6530[12] in Friday's trading hours, with the daily chart showing weak momentum. It has been observed that the pair has been below the nine days EMA[13], which means tension on the direction of the short-term prices. The 14-day Relative Strength Index (RSI)[14] has slipped below 50, which indicates a continued bearishness in the market. Market commentators[15] indicate that the September bottom of 0.6483 remains a significant support level but there are still downside risks. Analysts anticipate that any break in this direction would push the two towards the low of three months in August that is virtually near 0.6414.

Market commentators[16] point out that the pair is initially met with resistance at the 50-day EMA which is currently around 0.6550. Additional resistance is at the nine day EMA of 0.6581 which would enhance momentum. Analysts[17] anticipate that in case prices exceed these levels, short and medium-term prospects would be beneficial. This could drive the two to the 11-month high of 0.6707 that has been attained recently.

Market reports[18] point out that the Australian dollar is steady against the US dollar following two losses in two days. The pairs lost their strength as the US data came out better than expected to favour the Greenback, restraining the strength of the Aussies. Sentiment also became wary as US President Trump announced future 100% tariffs[19] on imports of pharmaceuticals. He added that exemptions could only be available in case the companies set up manufacturing plants in the United States and this caused uneasiness among investors. Analysts[20] indicate that the AUD was burdened by the risk aversion, limiting the returns against the strong US dollar.

Market reports[21] point out that Australia's monthly Consumer Price Index rose by 3.0% in August compared to July which increased by 2.8%. The current futures pricing provides a 4% chance of September's interest rate reduction. Market commentators[22] point out that speculation of a November cut in the rates by the Reserve Bank of Australia (RBA) decreased. Analysts[23] state that the probability reduced to half of the almost 70% before with increased data on inflation that cooled the confidence of the market in the policy easing.

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NZD/USD Faces Pressure Amid Global Uncertainties

The NZD/USD pair rebounded slightly and traded towards 0.5770[24] from its weakest level since 11 April early Friday, showing modest recovery after a three-day losing streak in recent sessions. Market commentators[25] note that although this has given market participants a temporary boost, the upside remains low because the presence of careful market sentiment is still pressuring the Kiwi against the stronger outlook of the US dollar.

Market reports[26] point out that the US dollar stabilized following a sharp rise, which peaked at three weeks ago. Traders are reluctant to raise profits, pending the release of the US PCE Price Index. This conservative sentiment forms the basis of the NZD/USD pair providing a temporary stability against wider forces. Significant weakness of the US dollar is not probable with diminished anticipation of aggressive easing by the Fed. Analysts[27] anticipate that the market sentiment currently depends on future inflation information, which will dictate the future policy trend and investor placement in the forex market.

Market reports[28] point out that the US GDP re-evaluation was raised to 3.8% growth per year in the Q2, higher than 3.3%. Durable Goods Orders[29] was an unexpected increase of 2.9% in August with more underlying economic activity. Weekly Jobless Claims[30] negotiated to 218K against 232K last week implying the persistence of the labour market. Market reports[31] point out that the data indicates a powerful US economy, which casts doubt on the time of Fed rate cuts. This uncertainty has supported USD demand providing the currency with an added strength against major peers.

Market commentators[32] indicate that the weakening of the market tone in equity markets helps the safe-haven interest of the Greenback to push the Kiwi. The increasing geopolitical risk, and the new Trump[33] tariffs, might further reduce the risk-taking appetite of investors. In conjunction with this, market expectations of further Reserve Bank of New Zealand (RBNZ)[34] interest rate reductions pressurising sentiment. Analysts[35] indicate that a combination of these should restrict an upside potential on the NZD/USD pair, with traders remaining wary of increased global uncertainties and a change of appetite towards safer currencies such as the US dollar.

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USD/CAD Inflation Focus Balances Fed Rate Outlook

USD/CAD extended gains for a fifth day and traded around 1.3940[36] in Friday’s Asian session. It is believed that the two stabilised close to the four month high of 1.3949[37] on Thursday after sound US economic news. Market commentators[38] point out that traders have shifted their focus on the US Core PCE Price Index which is the favourite inflation gauge of the Fed. Analysts[39] suggest that this next unleashing might give new clues about monetary policy and possibly determine the next action of USD/CAD.

Market observers[40] indicate that the economic might of the US could make the Fed rate reductions slow because the figures are still surprising. Market reports[41] point out that the GDP has improved by 3.8 in the Q2 surpassing the estimate of 3.3 and the previous figure. The GDP Price Index increased 2.1, a bit higher than projections of 2.0%. Jobless claims[42] fell to 218K, lowest since July, contrary to market expectations. The optimistic growth and employment patterns imply that the Fed[43] could have a slow pace of further easing measures.

Market reports[44] point out that Kansas City Fed President Jeffrey Schmid had indicated that the central bank is almost approaching its mandates. He emphasized that policy should be futuristic with the rate cut balanced risks in the labour market. Schmid observed that the inflation is still high, but employment is generally stable at this time. Meanwhile, Chicago Fed President Austan Goolsbee[45] said the Fed should not ease further because of the persistence of inflation and its current trend that is on the wrong side. Both emphasized the balancing between growth and regulating inflation as the issue of the Fed.

Market reports[46] point out that Canada signed its first Indo-Pacific trade agreement under Prime Minister Mark Carney, Thursday. This is evidenced by the bargain, which was announced by Trade Minister Maninder Sidhu, as an effort by Canada to reduce dependence on America. Sidhu pointed out potential expansion in areas of agriculture, energy, telecommunication and in defence and aerospace.

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