EUR/USD Remains Vulnerable as US Dollar Holds at Highs
EUR/USD traded vulnerablely and held near a more than month-low around 1.0350 on the first trading day of the year. The major currency pair is in a tough spot as the US Dollar (USD) holds at a more than two-year high, with the Dollar Index (DXY) trading around 108.50 on optimism that the Federal Reserve (Fed) will cut interest rates less than previously anticipated this year.
The Fed cut its main lending rate by 100 basis points (bps) in 2024 as policymakers were more concerned about higher risks to employment than the risk of rising inflation. However, they have guided for fewer rate cuts this year amid an optimistic US economic outlook. Moreover, a slowdown in deflationary trends has also forced officials to favor a gradual policy easing cycle.
The latest dot chart on the Fed’s Summary of Economic Projections shows that policymakers collectively see the federal funds rate heading to 3.9% by the end of 2025, up from the 3.4% forecast in September.
According to the CME FedWatch tool, the central bank is almost certain to keep rates unchanged in the 4.25%-4.50% range at its January meeting.
Looking ahead, the US dollar will be guided by the US ISM Manufacturing Purchasing Managers’ Index (PMI) data for December, due on Friday. The PMI is expected to fall to 48.3 from the previous reading of 48.4, indicating that manufacturing activity contracted at a slightly faster pace.
Source: FXStreet
