EUR/USD: Is Powell going to become a 'lame duck' now? - Commerzbank

Many years ago, EUR/USD was at 1.18, and that now, many years later, it is only a few cents lower, Commerzbank's FX analyst Michael Pfister notes.

EUR/USD to target the level of 1.18 in the coming days

"It is not impossible that we will reach 1.18 again. Late yesterday afternoon, the US dollar came under pressure again after reports emerged that Donald Trump may announce a successor to Jerome Powell as early as October. This increases the risk that Powell will become a 'lame duck' in his final months as Fed chair, and with it the risk of earlier interest rate cuts."

"As I mentioned yesterday, discussions about Fed interest rate cuts have gained momentum in recent days. Yesterday's news was a seamless continuation of this trend, with the market now pricing in almost 20 basis points of further interest rate cuts by December, compared to last week. The emerging differences among decision-makers, coupled with Trump's continued pressure on more hawkish officials, seem to have been reflected in the market."

"Interestingly, the US dollar appears to be suffering from this correction in interest rate expectations, despite being unable to benefit from the pricing out of interest rate cuts in the weeks prior to this. At first, this seems confusing, but the relationship between interest rate expectations and the US dollar has not always been as strong as it has been in recent months. However, if policymakers continue to shift towards earlier and larger interest rate cuts, then there is a good chance that EUR will be able to target the level of 1.18 in the coming days."