EURUSD trades in a narrow range above 1.0400 as volumes are sluggish and investors take vacations as the end of 2024 approaches.
Due to illiquid trading activity in the European session on Monday, the EURUSD trades only marginally over 1.0400.
The Euro expected to lose over 5.5% against the US Dollar this year as a result of the ECB’s dovish stance and a probable trade war with the United States.
The Euro (EUR) likely to finish the calendar year with a about 5.5% fall versus the US Dollar (USD), struck especially hard during the last three months of 2024 as The European Central Bank (ECB) maintained its dovish interest-rate guidance. Furthermore, market participants are concerned about the Eurozone’s economic growth, as upcoming tariff hikes from US President-elect Donald Trump will undoubtedly shock its export industry.
The ECB cut its Deposit Facility rate by 100 basis points (bps) to 3% this year and plans to lower it to 2%, which policymakers consider a neutral rate, by the end of June 2025. This means that the ECB will lower its key borrowing rates by 25 basis points at each meeting in the first half of next year.
Given Germany’s political uncertainties, a number of ECB policymakers have raised concerns about the possibility of inflation falling below the central bank’s objective of 2%.and a potential trade war with the United States. ECB officials have indicated contrasting views on how the continent should respond to the US trade situation.
Last week, ECB President Christine Lagarde noted in an interview with the Financial Times (FT) that retaliation was “a bad approach” because she believes that trade restrictions and a tit-for-tat response “is just bad for the global economy at large.”
In contrast, ECB policymaker and Finnish central bank Governor Olli Rehn stated: “Negotiation preferable, and the EU’s negotiating position can be strengthened by demonstrating in advance that it is ready to take countermeasures if the United States threatens Europe with higher tariffs.”
On the economic front, investors expect preliminary data from Spain’s Harmonized Index of Consumer Prices (HICP) for December.
Daily Market Update: EURUSD follows sideways US Dollar.
EURUSD traces the US Dollar’s footprint, which consolidates near a four-day support amid thin volume in year-end trading. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, wobbles around 108.00. The Greenback poised to end the year close to its highest level of the calendar year. Higher Treasury yields have been a key tailwind for the US Dollar. US bond yields have accelerated significantly in the past few months as investors expect incoming policies of higher tariffs and lower taxes under the administration of Trump will boost economic growth and inflation. This scenario would compel the Federal Reserve (Fed) to adopt a hawkish stance about the monetary policies.
The Fed guided fewer interest rate reduction for 2025 in its latest dot plot, as policymakers collectively expect Federal Funds rates to reach 3.9% by the end of 2025. Following a hawkish drop in December, Goldman Sachs expects the central bank to lower interest rates again in March. The business also forecasts two further rate decreases in June and September.
US investors will be focusing on the December ISM Manufacturing PMI report.
This week, investors will focus on the US ISM Manufacturing Purchasing Managers’ Index (PMI) data for December, which will be announced on Friday. The PMI index predicted to fall to 48.3 from 48.4, indicating that manufacturing production dropped slightly quicker.
