Expectations of Fed rate cuts boost the euro, but the rally may reverse due to Powell's speech

According to the Zhitong Finance and Economics APP, the euro has maintained its upward trend since August, with the euro to dollar exchange rate rising to a one-year high on Wednesday. However, cautious remarks that Federal Reserve Chairman Powell may make at the Jackson Hole Global Central Bank Annual Symposium on Friday could potentially reverse the euro's upward trend. Based on data from the Bank of New York Mellon, fund managers who have been betting on the Federal Reserve's imminent interest rate cut have been buying euros every day for the past two weeks, as they expect the euro to benefit from the Fed's rate cut. At the same time, fund managers using computer algorithms to track the latest market trends have sold $70 billion to $80 billion this month. This has driven the euro to dollar exchange rate up by 3% so far this month, rising to 1 euro to 1.1143 dollars on Wednesday, the highest level since July last year. However, revised US non-farm payroll data and Federal Reserve meeting minutes supporting market bets on a rate cut have further boosted the euro. As of the time of writing, the euro to dollar exchange rate is at 1.1153. Nevertheless, some strategists have indicated that Powell's speech at the Jackson Hole Global Central Bank Annual Symposium may resist the market's implied rate cut expectations. This would mean that US interest rates will remain relatively high compared to European rates, as Europe has already started cutting rates, enhancing the attractiveness of the dollar. Coupled with weak economic growth in Europe, the upward momentum of the euro may be about to reverse. Geoff Yu, Senior Strategist at the Bank of New York Mellon, stated that the euro is the "main beneficiary of the continued decline in US rate expectations and improved risk appetite." He added, "This is not a completely bullish story for the euro, as the macroeconomic situation in Europe is still very weak." Stephen Jen, CEO of Eurizon SLJ Capital, said, "This is more about the dollar weakening rather than the euro strengthening, as the fundamentals of the euro have not changed much." The economic growth prospects in the eurozone are uncertain, with confidence in Germany, the largest economy in the eurozone, significantly declining. European Central Bank Governing Council member Olli Rehn stated that the strengthening economic growth risks provide a strong reason for the ECB to consider easing policy at its meeting next month Brown Brothers Harriman's Senior Market Strategist Elias Haddad predicts that due to the Federal Reserve's less aggressive stance compared to the European Central Bank, the Euro is almost certain to reduce its gains. He stated, "We still believe that this divergence persists, which should continue to support the US dollar. In addition, the market is overly pessimistic about the US economy."