EUR/USD remained largely unchanged during North American trading hours on Tuesday, mirroring the US Dollar‘s movements in a tight range. The US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, is hovering just above the key 108.00 support level. This subdued price action reflects the quiet holiday trading conditions, with Forex markets experiencing thin volumes due to Christmas Day and Boxing Day.
The broader outlook for the US Dollar remains positive, underpinned by the Federal Reserve’s recent guidance of fewer interest rate cuts in 2025. In its latest dot plot, the Fed indicated only two rate cuts in 2025, a reduction from the four cuts previously projected in September. UBS analysts expect these cuts to be delivered in 25 basis point increments during the Fed’s policy meetings in June and September.
Fed officials have signaled a more cautious approach to rate cuts, citing persistent inflation, stronger-than-expected labor market conditions, and the uncertainty surrounding President-elect Donald Trump’s policies.
Looking ahead, attention will turn to Thursday’s release of the US Initial Jobless Claims data for the week ending December 20. Analysts forecast a slight decrease to 218K claims, down from 220K in the prior week. With a light economic calendar, this data is expected to be a key market mover for the US Dollar.
EUR/USD Under Pressure Amid Dovish ECB Expectations
EUR/USD is consolidating around the 1.0400 mark, maintaining a bearish outlook. The Euro weakened slightly after European Central Bank (ECB) President Christine Lagarde suggested in a recent interview that the ECB is “very close” to achieving its medium-term inflation target of 2%. However, Lagarde also cautioned that the ECB must remain vigilant regarding inflation in the services sector, where prices remain elevated at 3.9%, despite the headline Eurozone inflation easing to 2.2%.
Lagarde also addressed the issue of potential tariffs from US President-elect Donald Trump, warning that retaliation would be detrimental to the global economy. The ECB’s dovish outlook for 2025 persists, with traders anticipating the bank will lower its Deposit Facility rate by 25 basis points in each of the next four policy meetings, as inflation in the Eurozone is expected to return to the 2% target.
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