The EUR/USD pair dropped to near 1.0290 during the early European session on Friday, pressured by expectations of further rate cuts by the European Central Bank (ECB). These concerns have weakened the Euro against the U.S. Dollar, with traders now awaiting the release of the Eurozone’s Current Account and Harmonized Index of Consumer Prices (HICP) later in the day for fresh market insights. Additionally, ECB board member Piero Cipollone is scheduled to speak on Friday.
The ECB’s Monetary Policy Meeting Accounts, published on Thursday, revealed that policymakers last month agreed to adopt a cautious and gradual approach to any future rate cuts, although they acknowledged that further reductions are still on the table.
Looking ahead, the ECB’s next meeting is scheduled for January 30, with market participants fully expecting a 25 basis point (bps) cut. A Reuters poll conducted from January 10-15 showed that all 77 economists surveyed anticipate a cut to the Deposit Facility rate to 2.75%, with 60% predicting three more 25-bps cuts by mid-year. Growing speculation of additional rate cuts could further pressure the Euro in the short term.
On the other side of the Atlantic, the U.S. Federal Reserve’s next policy meeting is set for January 28-29. Traders largely expect the Fed to maintain current interest rates after a significant 1% cut in late 2024. Analysts suggest that uncertainty surrounding fiscal, trade, immigration, and regulatory policies under the incoming Donald Trump administration may dampen the likelihood of further rate cuts, despite easing inflation in the U.S. This could provide support to the U.S. Dollar, creating additional headwinds for the EUR/USD pair.
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