The EUR/USD pair continued its downward trajectory on Monday, trading in negative territory for the fifth consecutive day, hovering around 1.0215 during the early European session. The US Dollar (USD) gained strength following robust US employment data for December, reinforcing expectations that the US Federal Reserve (Fed) will maintain steady interest rates in January.
December’s strong job growth and a drop in the unemployment rate to 4.1% have bolstered the Greenback. The positive data led markets to expect the Fed to hold rates at its upcoming January meeting, with futures pricing indicating a 68.5% probability of only one rate cut this year, up from previous expectations. Scott Anderson, Chief US Economist at BMO Capital Markets, noted that the solid payroll gain and steady earnings growth provide a strong foundation for US economic expansion, likely keeping the Fed on the sidelines in January.
Meanwhile, the euro faces downward pressure against the USD due to dovish expectations surrounding the European Central Bank (ECB). Investors are anticipating four interest rate cuts from the ECB, with reductions expected at each meeting leading up to summer. ECB policymaker François Villeroy hinted that while inflationary pressures might rise slightly in December, the central bank would continue its gradual rate hikes toward the neutral rate without slowing the pace by summer, adding further bearish sentiment for the euro.
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