However, strong retail sales and declining unemployment claims have created uncertainty about the extent of Fed easing, leading to mixed market reactions and increased bond yields. As the Fed’s September meeting approaches, the EUR/USD exchange rate remains highly sensitive to upcoming economic data and shifting market expectations.
It was also discussed that in 2024, inflation remains uncertain, with various indicators pointing to potential economic challenges ahead. Despite a temporary rebound in U.S. GDP growth in Q2, the economy shows signs of fragility due to tight monetary policy, rising unemployment, and a weakening labor market. An inverted U.S. Treasury yield curve suggests a possible recession, and weakening consumer confidence, coupled with increasing auto loan delinquencies and record-high credit card debt, may reduce consumer demand, easing inflationary pressures.
However, if the economy continues to slow, the Federal Reserve may consider rate cuts to stimulate growth, potentially reigniting inflation. This delicate balancing act could lead to increased volatility in the EUR/USD exchange rate, especially if U.S. economic growth slows and the Fed moves towards a more accommodative monetary policy. The inverted yield curve chart from the previous article is shown below.
