EUR/USD Looks Steady Amid Divergent ECB-Fed Expectations
The EUR/USD pair remained pressured during the Asian session on Friday (12/13) and touched a near three-week low, around the 1.0455 area in the last hour. Moreover, the fundamental backdrop suggests that the path of least resistance for spot prices is to the downside and supports prospects for an extension of the recent downtrend.
The shared currency continues to be undermined by the European Central Bank’s (ECB) dovish bias and concerns about the faltering Eurozone economy. In fact, the ECB cut interest rates for the fourth time this year on Thursday and left the door open for further easing in 2025. This marked a major divergence compared to expectations for a less dovish Federal Reserve (Fed) and validated the negative outlook for the EUR/USD pair. This week’s US Consumer Price Index (CPI) and Producer Price Index (PPI) releases indicated that progress in lowering inflation to the Fed’s 2% target has almost stalled. Further, growing market confidence that US President Donald Trump’s expansionary policies will increase inflationary pressures suggests that the Fed will adopt a more cautious stance on rate cuts in the future.
The outlook remains supportive of a further uptick in the US Treasury bond yields and helped the US Dollar (USD) preserve its gains recorded over the past week or so, to fresh monthly tops touched on Thursday. Moreover, persistent geopolitical risks stemming from the Russia-Ukraine war and Middle East tensions, along with trade war fears, underpinned the safe-haven greenback and exerted some downward pressure on the EUR/USD pair.
However, traders seemed reluctant to place any aggressive bets and might opt to stay on the sidelines ahead of next week’s crucial two-day FOMC monetary policy meeting. The outcome will be looked upon for fresh clues on the Fed’s rate cut path, which in turn will determine the near-term trajectory for the US Dollar and the EUR/USD pair. That said, the aforementioned fundamental backdrop seems to be tilted in favour of bearish traders.
Source: FXStreet
