EURUSD is under pressure close to 1.0600 since ECB policymakers appear more concerned with the state of the economy than with containing inflation.
During Wednesday’s European session, the EURUSD encounters pressure around 1.0600 and drops to around 1.0560. As the US Dollar (USD) recovers sharply on expectations of fewer interest rate cuts from the Federal Reserve (Fed) in its currency policy-easing cycle, the major currency pair declines.
It anticipated that the Fed’s data-dependent strategy will hold off on making drastic interest rate cuts as market analysts forecast an increase in economic growth and a recovery in US inflation, as President Donald Trump’s win in both chambers will enable him to carry out his economic agenda with ease.
Trump pledge o reduce taxes and raise import duties by 10% globally, which would prevent the Fed from implementing further rate cuts. The decision still a “close call,” according to Deutsche Bank analysts, but the Fed expected to lower its borrowing rates by 25 basis points (bps) to the 4.25%–4.50% range for the December meeting.
US Dollar Index (DXY), which compares the value of the US dollar to six major currencies, is currently rebounding from the immediate support of 106.10 to around 106.30.
The US Dollar Index (DXY), which compares the value of the US dollar to six major currencies, is currently rebounding from the immediate support of 106.10 to around 106.30. The USD Index showed extreme volatility on Tuesday as a result of the Russia-Ukraine conflict’s recent escalation.
The greenback appreciated during Tuesday’s European session as Russia’s safe-haven appeal reinforced by Russian President Vladimir Putin’s approval of a revision to nuclear doctrine against Ukraine’s long-range missile launch, which approved by President Joe Biden and allowed by the US. However, Russian Foreign Minister Sergei Lavrov’s declaration that the nation would “do everything possible” to prevent the start of nuclear war cause the safe-haven demand to wane, according to Reuters.
Daily Market Update: EURUSD reverts to ECB dovish wagers.
Negative sentiment toward the Eurozone as a result of persistent geopolitical tensions, a bleak economic outlook, and political unpredictability in Germany has cause the EURUSD pair’s recovery move to stall.
Officials from the European Central Bank (ECB) are more focused on maintaining growth than controlling price pressures because Trump’s tariffs are anticipated to affect output as a whole. In a speech at Bocconi University in Milan on Tuesday, ECB policymaker and Bank of Italy Governor Fabio Panetta stated, “Restrictive monetary conditions are no longer necessary with inflation close to target and domestic demand stagnant.” In the event that the economy doesn’t improve, Panetta continued, price pressures might stay far below the bank’s target.
Panetta of the ECB stressed the need for an expansionary monetary policy approach to keep inflation from staying significantly below the bank’s target.
According to Reuters, Panetta stated that the central bank should “focus on the sluggishness of the real economy” and move key borrowing rates into “neutral, or even expansionary, territory” when asked about his outlook on interest rates.
In its semi-annual Financial Stability Review report, the ECB also cautioned that “economic Growth is still brittle.
The ECB anticipated to lower its Deposit Facility Rate by 25 basis points to 3% at its final monetary policy meeting of the year on December 12. This would be the third consecutive interest rate cut and the fourth of the year.
Regarding economic data, the Eurozone Q3 Negotiated Wage Rates data was revise downward from 3.55% to 5.42%, up from the previous quarter’s 3.54%. One indicator of wage growth that influences consumer spending is the data on Negotiated Wage Rates.
