The EUR/USD pair has extended its decline to around 1.0920 during the early Asian session on Monday. Heightened risk aversion, driven by escalating geopolitical tensions in the Middle East and ongoing conflicts between China and Taiwan, is exerting selling pressure on the Euro (EUR), considered a riskier currency.
A spokesperson from the US Department of State expressed serious concerns regarding the People’s Liberation Army’s (PLA) military drills in the Taiwan Strait and around Taiwan. The spokesperson emphasized that the US would closely monitor activities in the region and coordinate with allies to address shared concerns. Any signs of escalating tensions could lead to increased safe-haven flows, benefiting the US Dollar and further weighing on the EUR/USD pair.
Traders are anticipating a 25 basis point (bps) rate cut from the Federal Reserve (Fed) in November following the recent Producer Price Index (PPI) data released on Friday. The CME FedWatch Tool indicates that markets are now pricing in an 86.8% probability of a 25 bps Fed rate cut, an increase from 83.3% prior to the PPI release.
In Europe, the Euro faces additional pressure as the European Central Bank (ECB) is expected to lower interest rates further in its remaining monetary policy meetings this year. The ECB’s dovish outlook has been bolstered by a faster-than-expected decline in Eurozone inflation and concerns over a “fragile” economic recovery, contributing to the bearish sentiment surrounding the Euro.
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