- EUR/USD drops as the US Dollar strengthens on expectations of fewer Fed rate cuts in 2025.
- The Fed anticipates limited rate cuts in 2025 due to stalled disinflation and growing uncertainty around Trump’s policies.
- ECB President Lagarde expresses confidence in inflation sustainably returning to the 2% target ahead of schedule.
The EUR/USD remains below the 1.0400 mark during Monday’s North American session as the US Dollar (USD) recovers following Friday’s sharp sell-off. The US Dollar Index (DXY), which measures the Greenback’s strength against six major currencies, rises to around 108.20. This recovery is fueled by indications from Federal Reserve (Fed) policymakers that the central bank may deliver fewer interest rate cuts in 2025 due to persistent disinflationary challenges and economic uncertainties tied to President-elect Donald Trump’s incoming policies on immigration, trade, and taxation.
Cleveland Fed President Beth Hammack, the sole dissenter in last Wednesday’s policy meeting, reiterated her preference for maintaining current interest rates until clearer evidence shows inflation returning to the 2% target, according to a Reuters report.
Meanwhile, Chicago Fed President Austan Goolsbee highlighted in a CNBC interview on Friday that uncertainty surrounding Trump’s policy agenda has led him to scale back his expectations for 2025 rate cuts. While initially projecting a 100-basis-point reduction, Goolsbee now anticipates fewer cuts.
Friday’s sell-off in the USD was triggered by weaker-than-expected growth in the Personal Consumption Expenditure (PCE) Price Index, the Fed’s preferred inflation gauge. Core PCE inflation rose 2.8% year-over-year, slightly below estimates of 2.9%, while headline and core PCE inflation grew modestly by 0.1% month-over-month. This has raised doubts about whether the Fed will commit to a shallower rate-cut path in 2025.
In addition, US economic data showed a sharper-than-expected decline in Durable Goods Orders for November, which fell 1.1% compared to the anticipated 0.4% drop. October’s orders were revised upward to a 0.8% gain from 0.2%.
Daily Market Digest: EUR/USD Weakens as ECB’s Lagarde Expresses Confidence in Inflation Target Progress
- EUR/USD falls sharply, retreating after failing to break Friday’s high of 1.0445 during Monday’s North American session. The pair’s decline reflects the Euro’s (EUR) underperformance, as ECB President Christine Lagarde expressed optimism about disinflation progress in an interview with the Financial Times. Lagarde stated, “We’re getting very close to that stage when we can declare that we have sustainably brought inflation to our medium-term 2%.”
- The ECB has reduced its Deposit Facility rate by 100 basis points (bps) this year and is anticipated to cut rates by an additional 100 bps in 2025. This aligns with the bank’s strategy amid growing Eurozone economic risks and subdued inflationary pressures.
- Nearly all ECB policymakers have aligned with market expectations for steady rate cuts, aiming for a neutral interest rate of 2%. This approach seeks to balance inflation control without the risk of undershooting the bank’s 2% target.
EUR/USD Retreats from Key Resistance at 1.0440 but Holds Support at 1.0350
The EUR/USD pair remains under strong bearish pressure, with all short- to long-term Exponential Moving Averages (EMAs) trending downward. Despite the drop from the 1.0440 resistance, the pair continues to hold above the critical support level of 1.0350.
The 14-day Relative Strength Index (RSI) hovers in the bearish range of 20-40, signaling sustained downside momentum.
On the downside, a break below the two-year low of 1.0330 could open the door for a decline toward the psychological support level at 1.0200. On the upside, the 20-day EMA at 1.0500 stands as a critical resistance level for Euro bulls aiming to regain control.
