EURUSD falls further as numerous ECB policymakers predict the Deposit Facility Rate would go below the neutral range of roughly 2% or 2.25%.
EURUSD falls to around 1.0780 in Wednesday’s European session. The major currency pair under selling pressure as the US Dollar (USD) rallies. The US Dollar Index (DXY), which analyzes the US dollar’s value against six major currencies, rises to 104.20 and looks to retest its August high of 104.45. The greenback has risen despite political uncertainties ahead The US presidential election and strong anticipation that the Federal Reserve’s (Fed) policy-easing cycle will be more gradual than previously anticipated.
The uncertainty surrounding the US presidential election expected to keep market mood on edge.
The sheer strength of the US Dollar can also be ascrib to rising market wagers that former US President Donald Trump would win the upcoming election. Which takes place in less than two weeks. However, the most recent Reuters/Ipsos surveys show that current Vice President Kamala Harris leads by a slim margin. Trump’s triumph projected to result in higher tariffs and reduced taxes, potentially forcing the Federal Reserve to return to a restrictive policy posture.
Meanwhile, markets expect the Fed to lower interest rates further by 50 basis points (bps) in the remaining year, meaning that there would be two 25-bps cuts. The CME FedWatch tool predicts rate drops in November and December.
The Fed unlikely to duplicate the massive rate decrease witnessed in September this year, as the most recent Nonfarm Payrolls (NFP) figures show that labor demand has not slowed significantly. “Wage growth has slowed since the peak in 2022, but it is still stronger than at any point in the decade before the pandemic,” according to analysts at UBS.
Investors will pay special attention to the Fed’s Beige Book, which scheduled to be release at 18:00 GMT on Wednesday. Several Fed and ECB members, including President Lagarde, scheduled to speak.
Daily Market movers: EURUSD falls with weak Euro.
The EURUSD remains under pressure as the Euro’s (EUR) outlook has deteriorated because to the faster-than-expected decrease in inflation and increased dangers of a Eurozone economic collapse. Which have led speculation that the European Central Bank (ECB) could lower interest rates even further.
The ECB has already slashed its Deposit Facility Rate three times this year and is largely expected to do so again at its December meeting. As a result, traders begin to forecast the likely destination of ECB borrowing rates, a level that should keep inflation under control while simultaneously stimulating GDP.
ECB officials recently argued whether interest rates may cut below the so-called neutral rate to enhance economic growth and reduce inflation risks.
According to Reuters, some ECB officials recently argued whether interest rates may cut below the so-called neutral rate to enhance economic growth and reduce inflation risks. Gediminas Šimkus, the governor of Lithuania’s central bank and a member of the European Central Bank’s Governing Council, discussed the risk of Inflation remains too low. “If the disinflation processes get entrenched it’s possible that rates will be lower than the natural level,” Šimkus added. According to market experts, the neutral rate is approximately 2%, or 2.25%.
In an interview with Bloomberg on the sidelines of the International Monetary Fund (IMF) meeting on Tuesday, ECB President Christine Lagarde expressed confidence that inflation would stably return to the bank’s objective of 2% by the end of 2025, sooner than previously projected. When asked about the monetary policy outlook, Lagarde stated that the direction is clear, but the speed of future interest rate decreases will be determin by the incoming economic data.
