In this holiday – shortened trading week, the EUR/USD currency pair is locked in a narrow corridor around 1.0400. With trading volumes dwindling, the market lacks the impetus for significant swings. During North American trading on Tuesday, the pair mimicked the US dollar’s muted movements. Meanwhile, the US Dollar Index (DXY), which gauges the greenback against six major currencies, clung to a tight range just above the crucial 108.00 support. The impending Christmas and Boxing Day holidays have thinned out trading activity across the forex markets.
Central Bank Signals Shape the Pair’s Outlook
The broader stance of the US dollar remains robust, thanks to the Federal Reserve’s revised rate – cut projections for 2025. The latest Fed dot plot slashed the expected number of rate cuts from four to two. Analysts at UBS concur, forecasting 25 – basis – point rate cuts in June and September. Fed officials’ recent remarks point to this more cautious approach, spurred by persistent inflation, a more resilient labor market than expected, and the cloud of uncertainty hanging over President – elect Donald Trump’s incoming economic policies.
On the euro’s side, ECB President Christine Lagarde’s upbeat remarks have set the tone. She expressed confidence that inflation will hit the bank’s 2% target more speedily than previously anticipated. However, Lagarde also cautioned about the elevated service – sector inflation, which stands at 3.9% even as overall Eurozone inflation has cooled to 2.2%. Her words on Monday nudged the euro slightly lower.
Upcoming Data in the Spotlight
Looking ahead, investors are turning their eyes to the US Initial Jobless Claims data for the week ending December 20, slated for release on Thursday. Given the sparse US economic calendar, this data will be under intense scrutiny. Economists project the number of first – time jobless claimants to come in at 218K, down from the prior 220K figure.
Dovish Bets on the ECB Persist
The EUR/USD pair retains an overall bearish tilt. Dovish expectations for the ECB in 2025 are rife, with traders banking on the central bank to pare its Deposit Facility rate by 25 basis points in each of the next four policy meetings. This is fueled by the firm belief that Eurozone inflation will soon reach the 2% mark. When probed about potential EU responses to Trump’s possible tariffs, Lagarde denounced retaliation, citing its harmful impact on the global economy.
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