EURUSD tests the region below 1.0500 as the Euro (EUR) falls, weighed by expectations of further ECB interest rate cuts.

In Wednesday’s European session, the EURUSD continues to fall around the psychological support of 1.0500. The major currency pair weakens due to firm expectations that the European Central Bank (ECB) will reduce its Deposit Facility rate by 25 basis points (bps) to 3% in the policy meeting on Thursday, as well as US Dollar (USD) strength ahead of the US Consumer Price Index (CPI) data from November.

The ECB expected to lower its Deposit Facility rate by 25 basis points on Thursday, for the third time in a row.

ECB’s rate cut would be the third in a row and the fourth of the year. The ECB widely expected to cut interest rates by 25 basis points as policymakers become more convinced that inflation is under control and there are signs that Eurozone business activity is struggling. Meanwhile, a few ECB officials believe inflation may fall short of the central bank’s target due to potential tariff threats from US President-elect Donald Trump and weak domestic demand.

With traders expecting an ECB rate cut on Thursday, investors will pay close attention to President Christine Lagarde’s remarks in the press conference following the policy decision for new interest-rate guidance. Lagarde may deliver somewhat dovish remarks due to political Germany and France are experiencing instability, and Trump’s tariffs may have a negative impact on the export sector.

Daily market Update: EURUSD is under pressure ahead of US inflation data.

EURUSD is down as the US Dollar extends its winning streak into the fourth trading session ahead of the US inflation report, which is due at 13:30 GMT. The US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, rises above 106.50.

Economists expect annual headline inflation to rise to 2.7% from 2.6% in October. During the same period, the core CPI, which excludes volatile food and energy prices, is expected to rise steadily by 3.3%. The month-on-month headline and core CPI expected to have increased by 0.3%.

Investors are waiting for US inflation data to provide new interest-rate guidance.

The impact of the inflation data should not significantly alter market expectations for the Federal Reserve’s (Fed) likely interest rate action at the December 18 policy meeting, unless there is a significant departure from what expected. In recent comments, the majority of Fed officials have expressed confidence that inflation will remain on a sustainable path toward the bank’s 2% target.

According to the CME FedWatch tool, the Fed’s probability of cutting interest rates by 25 basis points to 4.25%-4.50% is nearly 90%.