- EUR/USD dips below 1.0500 as the ECB lowers interest rates by 25 bps.
- The ECB avoids committing to a fixed path for future rate cuts.
- Stable US CPI data reinforces expectations of a Fed rate cut in next week’s meeting.
EUR/USD hit a weekly low of 1.0470 during Thursday’s North American session following the European Central Bank (ECB) policy meeting. As expected, the ECB cut its Deposit Facility Rate by 25 basis points (bps) to 3% and lowered the Main Refinancing Operations Rate by 25 bps to 3.15%. This marks the ECB’s third consecutive 25 bps rate cut and the fourth this year.
Market participants had already anticipated the rate cut, given subdued price pressures in the Eurozone and a weakening economic outlook.
The Euro remains under pressure as dovish remarks from ECB President Christine Lagarde added to bearish sentiment. Lagarde revealed that policymakers had considered a more aggressive 50 bps rate cut, citing downside risks to growth and trade tensions with the United States as potential drags on economic activity. She also emphasized the ECB’s reluctance to commit to a predefined path for future rate adjustments.
According to ECB projections, headline inflation is expected to average 2.4% in 2024, 2.1% in 2025, 1.9% in 2026, and 2.1% in 2027. However, Lagarde noted that U.S. tariffs have not been factored into these forecasts.
On the political front, German Chancellor Olaf Scholz requested a no-confidence vote scheduled for December 16, a procedural step toward elections on February 23, 2025, according to Euronews. This follows the collapse of Germany’s three-party coalition after Scholz dismissed Finance Minister Christian Lindner.
Daily Market Movers: EUR/USD Drops as US Dollar Rebounds Despite Dovish Fed Expectations
- EUR/USD Slips Below 1.0500: The pair weakened during Thursday’s North American session as the US Dollar (USD) erased intraday losses and turned positive following the release of November’s Producer Price Index (PPI) and Initial Jobless Claims data. The US Dollar Index (DXY), which measures the Greenback against six major currencies, climbed to nearly 106.80.
- Producer Inflation Accelerates: Headline PPI rose to 3% year-over-year, exceeding both estimates and the previous reading of 2.6%. Core PPI, which excludes volatile food and energy prices, increased by 3.4%, surpassing expectations of 3.2% and the prior reading of 3.1%. While markets are pricing in a 25-bps rate cut by the Federal Reserve (Fed) at next week’s meeting, the stronger PPI data could fuel speculation that the Fed may pause rate reductions in January.
- Rising Odds for Fed Rate Cut: According to the CME FedWatch Tool, the probability of the Fed cutting rates by 25 bps to a range of 4.25%-4.50% next week has surged to nearly 99%, up from 88% earlier this week.
- Jobless Claims Surprise Higher: Initial jobless claims came in at 242,000, exceeding expectations of 220,000 and the previous reading of 225,000, signaling potential cooling in the labor market.
Technical Analysis: EUR/USD Breaks Below 1.0500
EUR/USD has dipped below the key psychological level of 1.0500, maintaining a bearish outlook. The 20-day EMA near 1.0560 serves as a crucial resistance level, limiting upside potential for Euro bulls.
The 14-day Relative Strength Index (RSI) hovers near 40.00; a drop below this threshold could signal a shift to stronger bearish momentum.
On the downside, the November 22 low of 1.0330 acts as a significant support level. Conversely, a recovery above the 50-day EMA near 1.0680 would present a key hurdle for the bulls.
