US Dollar Forecast: EUR/USD Rises as Traders Eye Powell’s Speech for Rate Clues

Dollar Index Slips as Traders Await Powell Speech

The U.S. Dollar Index (DXY) edged lower on Monday as traders anticipated a key speech from Federal Reserve Chair Jerome Powell. Investors are hoping Powell will provide clarity on the central bank’s monetary policy, particularly regarding the size of the next rate cut at the Fed’s November meeting.

Currently, the DXY is finding support at the 100 psychological level. Should this level break, selling pressure could push the index down toward the June 2023 low of 99.578. Conversely, resistance is expected at the 50-day moving average of 102.021.

Euro Strengthens Amid German Inflation Data

The euro gained ground against the dollar, supported by inflation data from Germany. Although the figures indicate easing inflation, they fell short of the stronger declines seen last week in France and Spain. As a result, the euro rose 0.25% on Monday, reaching $1.1194.

This moderate strength follows changes in market expectations regarding European Central Bank (ECB) rate cuts. With several investment banks now predicting back-to-back rate cuts in October and December, the euro remains under pressure, even as optimism around China’s economic outlook could have otherwise boosted the currency.

Chinese Stimulus and Yen Reaction to Japanese Election

Commodity-linked currencies also rallied on hopes of a turnaround in China’s economy, with the Chinese government’s latest stimulus measures offering some market optimism. However, despite this typically euro-positive news, the common currency has remained relatively stable, weighed down by ECB expectations.

Meanwhile, the Japanese yen has been in focus following former Defense Minister Shigeru Ishiba’s rise to power. The yen initially surged on news of Ishiba’s victory, reaching a one-week high of 141.65 per dollar, but gains were limited as Ishiba called for a snap election, maintaining Japan’s accommodative economic stance.

U.S. Payroll Data Looms

Another key driver for the dollar this week will be Friday’s non-farm payrolls report, which will provide further insight into the health of the U.S. economy and influence the size of future rate cuts. Recent expectations of significant U.S. monetary easing, following the Fed’s 50-basis-point cut, have pressured the dollar lower against major currencies in recent weeks.

Market Forecast

In the near term, the dollar faces downward pressure as traders price in further Fed rate cuts. If Powell’s speech signals continued dovishness, the DXY could fall below the 100 mark, with further losses toward 99.578.

However, stronger-than-expected non-farm payroll data could lend the dollar temporary support, with potential resistance near the 50-day moving average of 102.021. Traders will closely watch both the Fed’s outlook and key U.S. economic indicators for guidance.