EUR/USD continues to trade in negative territory during the Asian session on Tuesday, hovering around 1.0380 after paring some of its recent losses. The Euro (EUR) remains under significant pressure as market expectations of dovish monetary policy from the European Central Bank (ECB) persist. Investors anticipate a 25 basis point (bps) rate cut at each of the next four ECB policy meetings, fueled by concerns over the Eurozone’s economic outlook and expectations of subdued inflationary pressures.
These dovish expectations have been reinforced by growing confidence that Eurozone inflation will steadily return to the ECB’s 2% target, while uncertainty around potential US tariff policies has added further weight to the Euro.
Meanwhile, the US Dollar Index (DXY), which tracks the performance of the US Dollar against six major currencies, rose to around 108.30. The Greenback gained strength after recent losses, driven by news that President Donald Trump intends to direct federal agencies to review tariff policies and assess the US’s trade relationships with Canada, Mexico, and China.
However, the US Dollar faced some resistance following a Bloomberg report suggesting that President Trump would not immediately impose new tariffs following his inauguration. Market participants also expect the US Federal Reserve to maintain its benchmark overnight rate in the 4.25%-4.50% range at its January meeting. Still, investors speculate that Trump’s fiscal policies could trigger inflationary pressures, potentially limiting the Fed to only one more rate cut in the near future.
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