The EUR/USD has risen for five straight days, hitting a new weekly high around 1.1670 as the US Dollar weakens. Investors expect the Federal Reserve to announce an interest rate cut on Wednesday, fueled by growing optimism about trade between the US and China. The US Dollar Index, which compares the Dollar to six major currencies, fell to a weekly low of 98.50. The Consumer Price Index for September showed a modest rise in both headline and core inflation, increasing by 0.3% and 0.2% respectively.

Trade Optimism Between US And China

There’s growing hope for a trade agreement between the US and China, which could strengthen the Dollar. President Trump has expressed confidence that a deal will come soon. Meanwhile, all eyes in Europe are on upcoming German inflation data and the Eurozone’s third-quarter GDP. These are expected to show steady economic growth. The Eurozone’s Harmonized Index of Consumer Prices (HICP) and other economic indicators are key to assessing the Euro’s value. If inflation rises above the European Central Bank’s target, it may lead to changes in interest rates, affecting how attractive the Euro is. The trade balance is also an important factor in determining the Euro’s value. The EUR/USD continues its upward trend towards 1.1670 this week, marking five consecutive days of gains. This growth is powered by a weakening US Dollar as we approach the Federal Reserve’s policy announcement tomorrow, with strong expectations for another interest rate cut. This expectation is backed by recent economic data showing the US economy is slowing down. For example, job growth has slowed compared to last year’s strong pace, and September’s CPI increase of 0.3% is not enough to stop the Fed from easing. Last year, inflation exceeded 8%, so current conditions give the central bank room to make a move.

Expectations For Central Bank Decisions

With a major central bank decision just hours away, expect a significant rise in short-term volatility. Implied volatility on EUR/USD options has already increased, a pattern often seen before Fed announcements. This creates opportunities to use strategies like straddles to capitalize on the expected post-announcement price movements, regardless of direction. We also need to keep an eye on important data from Europe this Thursday, including German inflation and the Eurozone’s Q3 GDP. Analysts expect modest 0.1% growth, similar to the stagnant figures seen in parts of 2024. A surprisingly strong report from Europe could further boost the EUR/USD, especially if the Fed communicates a dovish outlook. Additionally, improving risk sentiment driven by optimism about a US-China trade deal is putting pressure on the safe-haven Dollar. The S&P 500 has risen nearly 1.5% this week, indicating a strong appetite for risk among investors. If this trend continues, it will likely add even more upward pressure on the Euro. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now