EURUSD faces challenge in extending recovery over 1.0270 as the US Dollar rises.
EURUSD maintains Monday’s rebound rise in Tuesday’s North American session, but struggles to break above the immediate barrier of 1.0270. The major currency pair struggles to recover further as the US Dollar rebounds following a minor correction, with the US Dollar Index (DXY), which tracks the Greenback’s value versus six major currencies, gaining above 109.60 as the US Dollar’s strong near-term trend continues.
President-elect Donald Trump’s policies are predicted to increase US inflation and growth.
The US dollar remains strong as the 30-day Fed Funds According to the CME FedWatch tool, futures prices indicate a higher probability of only one interest rate decrease from the Federal Reserve (Fed) this year, compared to two rate cuts represented by the dot plot in the most recent Fed Summary of Economic Projections (SEP).
Traders have reduce their Fed dovish wagers on the back of healthy labor demand, as evidenced by the latest US Nonfarm Payrolls (NFP) data issued on Friday, which indicates a bright economic outlook. Furthermore, market participants expect inflationary pressures to persist under President-elect Donald Trump’s administration, since new policies such as immigration limits, tariff increases, and tax cuts will enhance aggregate demand and growth.
For fresh clues on the current state of inflation, investors will focus on the US consumer Price Index (CPI) statistics for December will be reveale on Wednesday.
Investors will pay close attention to the US Producer Price Index (PPI) data for December, which will be release at 13:30 GMT on Tuesday. Annual headline PPI expected to have risen to 3.4% from 3% in November. During the same time, the core PPI, which excludes volatile food and energy goods, predicted to rise by 3.7%, quicker than the prior report of 3.4%.
Daily market update: EURUSD struggles to extend comeback amid Euro outperformance.
The EURUSD pair expected to recover further as the US Dollar performs strongly. However, the Euro (EUR) performed strongly on Tuesday, even if European Central Bank (ECB) policymakers continue to support market expectations of additional policy easing, which have stemmed from a weak Eurozone economic outlook amid fears that US President-elect Donald Trump could slap hefty tariff hikes on the old continent, a scenario that could weaken the export sector.
The ECB’s Rehn expects monetary policy constraints to end by mid-summer.
ECB policymaker and Bank of Finland Governor Olli Rehn said in a conference on Monday that he expects the monetary policy to leave the restrictive territory in the coming months, at the latest by “midsummer”. However, Rehn’s comments indicated he is not worried about the Trump trade. Rehn argued that corporations will find ways to “circumvent” them and even a recent fall in direct commerce between China and the US was hiding such a tendency, Reuters reported.
Market participants expect the ECB to decrease interest rates in each of its next four policy meetings, implying that the Deposit Facility rate will drop to 2%. Analysts at Barclays predict the Eurozone to begin 2025 on a shaky note, owing to “significant sluggishness” in Germany’s manufacturing sector.
