In the Monday European session, the EUR/USD pair edges downward, finding it tough to surpass Friday’s high of 1.0445. This dip comes as the euro underperforms, spurred by comments from European Central Bank (ECB) President Christine Lagarde. In an interview with the Financial Times (FT) published on Monday, Lagarde expressed her confidence in further disinflation progress, stating, “We’re getting very close to that stage when we can declare that we have sustainably brought inflation to our medium-term 2%.”
The ECB has already slashed its Deposit Facility rate by 100 basis points this year. Given the deepening economic risks in the Eurozone and inflation staying under control, another 100-bps rate cut is anticipated for next year. Practically all ECB policymakers are in line with market expectations for a successive rate reduction until the rate hits 2%, which they view as a neutral rate to prevent inflation from falling below the 2% target.
Meanwhile, the Federal Reserve foresees fewer interest rate cuts in 2025. The disinflation process has stalled, and there’s a growing cloud of uncertainty regarding President-elect Donald Trump’s policies.
Adding to the market dynamics, trading volume is likely to be thin this week. With Christmas Eve and Boxing Day holidays, there are fewer trading days, which typically subdues market activity across currency pairs. The heat map, which showcases percentage changes among major currencies, uses a system where the base currency is selected from the left column and the quote currency from the top row. For instance, when the euro is chosen as the base and the US dollar as the quote, the box shows the percentage change for EUR/USD.
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