EURUSD rises marginally to about 1.0515 ahead of preliminary PMI data for both the Eurozone and the United States for December.
The EURUSD remains close to 1.0515 in Monday’s European session, despite the fact that the preliminary Eurozone HCOB Purchasing Managers’ Index (PMI) data for December was higher than expected. The PMI survey revealed that overall business activity increased to 49.5 from 48.3, implying that private sector activity fell at a slower rate. An improvement in overall activity occurred from increased service sector output, which returned to growth after shrinking in November. The Services PMI, which measures activity in the services sector, unexpectedly rose to 51.4 from 49.5. Economists expected the Services PMI to fall at a slightly higher rate to 49.4. The Manufacturing PMI fell steadily to 45.2, below expectations of 45.0. A value below 50.0 indicates a downturn in economic activity.
The German and French Composite PMIs have also performed better than predicted, owing to a substantial increase in service sector activity. However, the Composite PMI remained below the 50.0 mark, which distinguishes expansion from contraction.
The ECB anticipated to decrease interest rates by another 100 basis points next year.
The overall situation supports more interest rate decreases from the European Central Bank (ECB) and weighs the Euro (EUR).
On Thursday, the ECB reduced its Deposit Facility rate by 25 basis points (bps) to 3%, bringing the total number of interest rate cuts this year to 100 bps. Given that Eurozone inflation has stabilized and officials are concerned about rising economic risks, market participants expect the ECB to cut its benchmark borrowing rates by another 100 basis points by June 2025.
A considerable number of ECB policymakers, including President Christine Lagarde, have advocated for additional policy easing and a gradual return to the neutral rate, which they believe to be around 2%. “Will cut rates further if incoming data confirm that disinflation is on track,” Lagarde stated at the Annual Economics Conference’s European session on Monday. Lagarde’s The premise that “inflation momentum for services has dropped steeply recently” supported the dovish statements on policy outlook.
French central bank Governor Francois Villeroy de Galhau told France’s BFM business radio on Friday that “there will be further rate cuts next year.” When asked about interest rate expectations, he stated: “I note that we are collectively rather comfortable with the financial markets’ interest rate forecasts for next year.”
For further information on interest rates, ECB President Christine Lagarde will offer a keynote lecture and moderate a panel at the Bank of Lithuania’s event on European economic and political resilience.
French President Emmanuel Macron named Francois Bayrou as the new Prime Minister on Friday.
On the political front, French President Emmanuel Macron named Francois Bayrou as the new Prime Minister on Friday. He succeeded Michel Barnier, who lost He faced a no-confidence vote after failing to pass the budget, which included 60 billion Euros in tax increases to reduce the fiscal imbalance. Bayrou, who expected to encounter similar issues in his administration, slated to meet with Far Right and left-wing figures on Monday and Tuesday, according to Reuters.
Daily market Update: EURUSD will be influenced by the Fed’s policy announcement and dot plot.
The EURUSD pair is slightly higher due to a modest drop in the US Dollar (USD) amid uncertainty ahead of the Federal Reserve’s (Fed) interest rate announcement, which is scheduled for Wednesday. The US Dollar Index (DXY), which analyzes the Greenback’s value versus six major currencies, falls but trades near the crucial Resistance of 107.00.
The Fed is largely expected to lower its main borrowing rates by 25 basis points to 4.25%-4.50%. As a result, investors will pay particular attention to the Fed’s Summary of Economic Projections, also known as the “dot plot,” which illustrates where officials believe the Federal Funds Rate will be in the medium and long term.
Investors closely watch the Fed’s dot plot for new interest rate estimates in the United States.
According to a Bloomberg survey conducted between December 6 and 11, the majority of economists anticipate a less dovish Fed outlook for 2025. Economists see the Fed reducing interest rates three times next year on the assumption that progress in the disinflation process slowed. The survey also indicated that economists have become more worried about upside risks to inflation than downside risks to employment due to incoming President-elect Donald Trump’s policies, include mass deportations, increased tariffs, and tax cuts.
Investors will pay close attention to the December S&P Global PMI data for the United States (US), which will be release at 14:45 GMT on Monday.
